(11 years, 10 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
19:31 - The House divided: - Ayes: 240 / Noes: 308 - Question accordingly negatived.
19:46 - The House divided: - Ayes: 0 / Noes: 0 - Question accordingly agreed to.
22:57 - The House divided: - Ayes: 308 / Noes: 233 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 3—Sixth form colleges (exemption from VAT)—
‘In Schedule 9 to the Value Added Tax Act 1994 (Exemptions), in Group 6 (Education), the following shall be added at the end of Note (1) (description of eligible body)—
“(g) a sixth form college”.’.
New clause 10—VAT: review—
‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has fully reviewed the impact of any such Order on jobs, living standards and businesses, making reference to the HMRC Consultation “VAT: Addressing Borderline Anomalies”, and placed a copy of the review in the Library of the House of Commons.’.
New clause 12—Rate of VAT—
‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent.” substitute “17.5 per cent.”.
(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.
Government amendment 17.
Government new schedule 1—‘Categorisation of supplies.
Government amendments 18 to 20.
Mr Gauke
A number of VAT measures are to be debated today. To help the House, let me outline how I intend to deal with them. I will first address new clause 4, which relates to VAT on face-value vouchers, before turning to Government amendment 17 and new schedule 1, which address VAT anomalies. I am also conscious that a number of new clauses have been tabled by other right hon. and hon. Members, which I will respond to more fully later in the debate. I will also address amendments 18 to 20, which are consequential amendments dealing with VAT anomalies.
New clause 4 is a Government change to protect revenue. It guards against the possibility of widespread VAT avoidance by the use of so-called single-purpose face-value vouchers. Because of the seriousness of the threat, I announced the change by way of a written ministerial statement on 10 May. Following a decision by the European Court of Justice in May, we need to amend our legislation as it relates to single-purpose face-value vouchers, such as phone cards, so that VAT is due when such vouchers are issued.
We need to act with immediate effect to prevent a loophole due to the mismatch between the ECJ decision and current UK legislation. This could occur because individuals could argue that VAT cannot be collected on redemption by virtue of the Court’s decision, and it cannot be collected on issue by virtue of UK legislation. Therefore, the new clause protects around £200 million of revenue a year and guards against avoidance that could otherwise run into hundreds of millions of pounds.
The changes made by new clause 4 will remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, normal VAT rules will apply and they will be taxed when they are first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods and services after that date, other than where that would lead to double taxation.
It might be helpful to hon. Members if I provide a little background to the new clause. As I have said, the issue arose in connection with a recent decision of the European Court of Justice concerning the VAT treatment of cross-border supplies of single-purpose vouchers, in this case phone cards supplied by a business in the UK to customers in other member states. Most member states tax single-purpose vouchers when they are issued, but in the UK the issue is disregarded and VAT becomes due only when the vouchers are used to obtain the underlying goods or services. This treatment is welcomed by UK businesses, because it delays the point at which they have to account for VAT, so creating a cash-flow advantage and an absolute saving on those vouchers that are issued but never redeemed.
However, in the case before the European Court of Justice, the business concerned complained that the difference in treatment between the UK and some other member states caused double taxation, because VAT was due in the member state where the card was sold to the final consumer and again in the UK when it was used to pay for telephone calls. The Court found against the UK’s approach in such a way that, until UK law was changed, suppliers of single-purpose face-value vouchers could have escaped VAT altogether. In the current market, that would have led to a tax loss of £200 million a year. In addition, if UK law had not been changed there would have been the risk of widespread avoidance involving the use of single-purpose vouchers, which could have led to a significant loss of tax.
To give an example, a car manufacturer could have issued a face-value voucher for a new car of £15,000, which the customer could then redeem at his local dealership. UK law said that there was no tax on the issue of the voucher, and the Court of Justice of the European Union said that there was no supply at redemption and, therefore, no tax. That may be an extreme example, but it illustrates the problem that could arise in a variety of retail scenarios.
The changes that new clause 4 make would remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, this means that normal VAT rules will apply, and such vouchers will be taxed when first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods or services after that date, other than when that would lead to double taxation, but the Court’s definition of what constitutes a single-purpose voucher allowed us to retain the UK’s treatment for most vouchers.
The Court took the view that a single-purpose voucher is one that can be used to obtain goods or services of only one type, and which are subject to a single rate. Single-purpose face-value vouchers that are for one type of good or service form only a small proportion of the overall market for face-value vouchers, because most face-value vouchers can be exchanged for a range of goods or services. For example, a cinema voucher may be exchanged for tickets as well as for confectionary. Both the entry to see the film and the confectionary make suppliers liable to standard-rate VAT, but as they cannot be said to be of the same type the voucher is not caught by the judgment. We therefore expect the change to affect a relatively small number of businesses, and I hope that that explanation is helpful to the House.
In conclusion on face-value vouchers, the new clause is a proportionate response to the significant risk of tax loss arising from the use of single-purpose vouchers. It is carefully targeted against the risks and retains the VAT treatment for the great majority of vouchers sold in this country, and I commend it to the House.
Amendment 17 and new schedule 1 relate to the categorisation of suppliers for the purposes of value added tax. New schedule 1 would implement the changes announced at the Budget, which have been refined in the light of consultation, to address anomalies and loopholes in the area of VAT liability. The VAT system contains a number of anomalies along the borderlines of VAT exemptions and VAT zero rates, and addressing some of those anomalies and loopholes is precisely what the Chancellor announced at the Budget.
The Government announced at the Budget that they were introducing a number of measures to address some of those VAT anomalies, reducing uncertainty, costs for business and for HMRC, and raising revenue. On Budget day, we proposed a number of measures and launched a consultation to engage stakeholders and to listen to their ideas. The measures that we announced proposed to clarify the treatment of catering to ensure that all hot takeaway food is taxed, and to clarify the meaning of “premises” in the context of whether food is consumed on or off a supplier’s premises.
We proposed also to tax sports nutrition drinks to ensure that all sports drinks receive the same tax treatment, and to remove self-storage from exemption in order to ensure that all suppliers of storage receive the same tax treatment and to counter avoidance.
Mr Gauke
I certainly will, although at this point I am just setting out what we set out at the Budget. I will turn to each individual measure in more detail in a moment and happily give way to my hon. Friend at that point.
We propose to remove the anomaly whereby approved alterations to certain listed buildings are zero-rated while alterations to other buildings and repairs to and maintenance on all buildings are standard-rated. We included transitional arrangements for alteration works to listed buildings which had been contracted before the Budget, and we wanted to put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs.
Finally, we proposed to ensure that holiday caravans are taxed consistently at the standard rate of VAT. The proposal, as set out in the consultation document, was that all the changes would take effect from 1 October via secondary legislation, supported by anti-forestalling provisions in this Bill. The consultation was opened on 21 March, and overall HMRC received some 1,500 responses. Owing to the volume of interest in the consultation, we decided to extend it, and since it has closed we have reflected fully on the points made during the process.
As the House will be aware, in two areas—hot food that is cooling down naturally and static holiday caravans—the Budget proposals created a high degree of business uncertainty, so the Government wanted to let people know our preferred course of action as soon as possible; we did that on 28 May. Last Thursday, we published a consultation response document and tabled the new schedule setting out our approach to all the measures on which we consulted. We stand by the rationale for removing anomalies, but have made several refinements, including those we announced on 28 May. They are intended to improve the policy and reflect the practical concerns raised in the consultation.
Diana Johnson (Kingston upon Hull North) (Lab)
HMRC produced a document on the impact of the caravan tax, but can the Minister provide enlightenment on the impact of the 5% VAT imposition? There are no figures now on how many jobs will be lost and by how much demand for static caravans will decrease, and I was hoping that the Treasury had worked that out.
Mr Gauke
Clearly there is a substantial difference between 20% VAT and 5% VAT. We set out our estimates in relation to the 20% rate, and some of the concerns that people took from what HMRC set out were, I think, somewhat greater than the reality warranted, because the impact set out and the assumption regarding the reduction in demand related solely to that element to which the change from zero-rated to standard-rated applied. On many caravans that are sold, the VAT is recovered—VAT already applies to an element of the price of a static caravan: that of the fixtures and fittings.
We do not think the impact of the 5% rate is likely to be substantial. In the usual course of business there are tax changes—national insurance contributions and rates are the subject of regular fluctuations—and in many cases the VAT change may well be absorbed. In addition, we have given industry much more time by deciding not to implement the change until April next year. Caravan manufacturers will have the opportunity to sell more caravans in advance of next year’s summer season—the information we have is that spring tends to be the busiest period. The overall impact on the industry is therefore unlikely to be significant.
Before discussing each of the anomalies and saying more about static caravans, I would like to give the House a little bit of history about the VAT system. As I am sure all hon. Members know, the VAT system was introduced in 1973 and amendments and adjustments were being made as early as 1974. The then Labour Government added confectionary, soft drinks, ice cream, potato crisps and certain other savoury snacks—
Mr Speaker
Order. My ears pricked up when the Minister suggested he might furnish the House with what he gently described as “a little bit” of information about VAT. In offering to the House—in a public-spirited fashion, I am sure—a potted history of the value added tax system, I am sure that he will have regard to the new clause that he is presenting.
Mr Gauke
I certainly will, Mr Speaker. I did say I would give a little history and, following your guidance, I will focus on the little.
I hope it helps the House if I explain that, in the almost 40 years in which we have had VAT, there have been changes from time to time. There were changes in the VAT on building alterations in 1982 and 1984, on hot takeaway food in 1984 and on newspaper and magazine advertising in 1985—I could go on, Mr Speaker, but let me move on.
Nigel Mills
My hon. Friend refers to the marketing of such things as sold hot. Will he confirm that a baker who markets something as freshly baked would not fall foul of this provision, given that presumably when something is freshly baked it is hot? I think that the intention is that, say, a freshly baked sausage roll that is cooling down would not be subject to VAT, but if that marketing term were used it could perhaps be caught by the provision.
Mr Gauke
The final details as to what exactly will or will not constitute marketing something as hot will be set out in the HMRC guidance. However, I take on board my hon. Friend’s perfectly reasonable point that something that is presented essentially as fresh, but cooling, is different from something that is clearly presented as hot at the point at which one purchases it.
Stephen Gilbert (St Austell and Newquay) (LD)
I am tempted to ask my hon. Friend whether he knows how many different chocolate eyes a gingerbread man must have to go from being zero-rated to standard-rated. The answer is on HMRC’s website.
On packaging, new schedule 1 uses the wording:
“whether or not the packaging was primarily designed for that purpose”.
There is some ambiguity as to whether a simple paper bag might be caught by that definition. Can the Minister assure us that people will be able to get their pies and pasties in a paper bag from the bakery without their being standard-rated?
Mr Gauke
The purpose of that wording relates to packaging that is specifically designed for the retention of heat. For example, hon. Members will all have experience of a paper bag with a foil interior that is used for such purposes. I do not think that a simple paper bag would fall into that category. In most people’s experience, pasties and suchlike are generally left on shelves rather than contained within bags while in the shop. I hope that that provides some clarification.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
We have arrived at this change after 20-odd years in which, through various legal challenges, we have come to our current conclusions on this aspect of VAT. Can the Minister assure us that we are not facing another 20 years of litigation in order to get these finer details clarified?
Mr Gauke
One can never rule out the fact that some people will be litigious and try to take a creative view of any particular guidance. However, we believe that we have reached the right position after much consultation and discussion with the industry and with hon. Members, many of whom have been very engaged in the matter. I look around the House and see at least two Members who have been in my office to make representations on this point. We believe that we have reached a position that is sustainable and fair, and that is what we are putting to the House in the new schedule. The additional criteria will ensure that hot food will generally be taxed at the standard rate of VAT, but if food that would be zero-rated when cold is bought when it happens to be cooling down, but is not yet cold, it will still be zero-rated provided that it does not meet any of the criteria that I set out. These changes will add further tests to make the relief less open to abuse and provide a level playing field for all businesses supplying their customers with hot food.
Turning to the issue of holiday caravans, which we have touched on briefly, the VAT zero rate was originally intended to apply to the sale of caravans used only for residential purposes. To achieve that objective, the rules drawn up in the 1970s applied tax only to the sale of smaller caravans that could legally be towed on UK roads by a typical family car. However, over the years, an increasing number of large caravans have been used for holiday purposes. Those caravans inadvertently benefit from the VAT zero rate that was intended for residential caravans. That has led to widespread inconsistency in the VAT treatment of the sale of holiday caravans.
Under the current legislation, any caravan wider than 2.55 metres or longer than 7 metres is zero-rated as a residential caravan. The Government propose to replace the definition of a zero-rated caravan based on size with a new definition based on whether the caravan has been designed for residential use. To achieve that, we propose a new test that links the zero-rating with British Standard 3632, which indicates that the caravan has been designed and manufactured for continuous, all-year-round occupation and is therefore suitable for residential accommodation.
We consulted on whether the additional criteria should be added to ensure that the zero rate applies only to caravans intended for residential use. Given the reaction to the proposal, we decided that rather than having a single dividing line between a zero rate of VAT on residential caravans and a rate of 20% on static holiday caravans, static holiday caravans should be subject to VAT at the reduced rate of 5%. Static residential caravans—those that meet BS 3632, or early equivalents in the case of second-hand sales of older caravans—will remain zero-rated, as per the Budget proposal. We do not intend to restrict the zero rate further by adding additional criteria.
Diana Johnson
I wonder whether it is sensible to make decisions on tax policy based on manufacturing standards. Manufacturing standards will change and no doubt get better, so is that a sensible way of operating tax policy?
Mr Gauke
In this particular circumstance, the manufacturing standard provides a better definition or borderline than the size criteria that I set out. It was put to us in the consultation that it would be very easy for manufacturers to do a bit more here and there, and that a static caravan that was once not BS 3632-compliant suddenly would be. When we investigated that, we concluded that it was quite expensive and difficult to meet BS 3632. Genuine residential caravans meet that standard, but non-residential, holiday vans do not. It seems to be an effective borderline. Of course these matters will be kept under review, but we think that this is a sensible conclusion and one that the industry recognises. The evidence that the industry has put to us is that BS 3632 adequately distinguishes between residential caravans and static caravans.
It is worth pointing out that BS 3632 caravans tend to be more expensive and are built to a higher specification. For those reasons, they tend to be used more in the residential market than in the holiday market. It is worth coming back to the intention of the 1970s definition for zero-rated caravans.
We recognise that static holiday caravans fall in a grey area between residential property and temporary holiday accommodation, which have different tax regimes. We have therefore produced the fair compromise of a 5% VAT rate. The argument was sometimes made to us that static holiday caravans should be treated like a second home, on which VAT is not paid. However, council tax is paid on a second home, which is not the case with static holiday caravans. Imposing the council tax regime on static caravan homes would have placed a significant burden on their owners and holiday parks, so we believe that we have made a fair compromise. As I said earlier, to give the industry more time to adjust, the measure will be delayed until 6 April 2013. All the other measures that we are discussing today will proceed as planned on 1 October this year.
Catherine McKinnell
My hon. Friend the Member for Kingston upon Hull North (Diana Johnson) asked about the impact that the current proposals will have on the industry. Will the Minister confirm that the Treasury has not yet calculated that impact?
Mr Gauke
We assessed what the impact would be if VAT was at 20%, and obviously 5% is a quarter of that, so one can draw correlations. Most industries supply VAT-inclusive durable goods at a profit, so it is reasonable to apply VAT in this case. The impact that we originally set out in the tax information and impact note at the time of the Budget will be significantly lessened by the change to the 5% rate, particularly bearing in mind that there is already a full 20% rate on a fair proportion of static caravans because of the durable goods contained within them.
Andrew Percy (Brigg and Goole) (Con)
We can partly assess what the impact will be from what manufacturers themselves have said, which is that they do not expect the 5% rate to have an impact of any great severity on them. However, it is important to recognise that there needs to be stability, so an assurance that the Government will not raise the rate in future would be welcome, as would an undertaking that there will be an assessment of the rate after a year or two to see whether it has had any impact. Generally, the industry has welcomed it.
Mr Gauke
My hon. Friend is right to say that the industry has welcomed the change to our policy. As we would expect, it does not anticipate the 5% rate to have a significant impact on it. As far as the stability of the rate is concerned, the standard wording is to say that all decisions are for the Chancellor and all taxes are kept under review, but I do not anticipate that the Government will return to this issue in any great hurry. I am sure my hon. Friend will be pleased about that. Were we to do so, I have no doubt that he would make strong representations once again. I hope he will take some comfort from that.
Diana Johnson
The National Caravan Council has said that the caravan industry is fragile after the problems that it experienced in 2008. Based on the figures in the KPMG report, there would have been 6,000 job losses if the imposition of the 20% rate had gone ahead. Am I right to assume that with the 5% rate, the Treasury is working on the assumption that the impact will be a quarter of that number, which means 1,500 job losses?
Mr Gauke
Perhaps it will help the hon. Lady if I run through the situation. We have to raise a certain number of taxes, and VAT probably does less harm to the economy than almost any other tax that one could mention, whether it be employers’ national insurance contributions, which reduce the number of jobs, or corporation tax, which reduces investment. There is an issue with any tax.
On this particular policy, however, we are talking about a 5% rate on 80% of the price of a caravan, the other 20% being standard rated already, and on 85% of sales, the other 15% being standard rated already—or rather the purchaser being able to recover input taxes on it. There is then an elasticity of demand, and the 5% rate might result in a 5% reduction in demand, but of course that involves various assumptions and some uncertainty. As my hon. Friend the Member for Brigg and Goole (Andrew Percy) said, however, much of the industry does not think it will have a significant impact.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con)
I wish to reinforce that point. The site operators, of which, as the Exchequer Secretary knows, there are many in south and west Wales, would also come to the same view—although not ideal, they thoroughly understand the situation and recognise it as one they can manage for the foreseeable future. They much welcome the news that it will not be revisited in the foreseeable future.
Mr Gauke
My hon. Friend is absolutely right. Tax is but one of the various factors that will have an impact on demand, and VAT is but one tax. I shall not dwell on it, Mr Speaker, but I should mention that the Government are putting in place a much more competitive corporation tax regime, which will be to the advantage of caravan manufacturers and many others.
I shall touch briefly on alterations to listed buildings. The reaction to our announced changes to VAT on approved alterations to listed buildings demonstrated the need for the measure on the grounds of simplification alone. The consultation and media coverage have highlighted the huge uncertainty over whether an item of building work is an alteration or a repair. The purpose of the measure is to avoid the need for such discussions by applying the same VAT liability to all alterations, repairs and maintenance. Repairs and maintenance to all buildings, including listed buildings, have always been liable to VAT, and alterations to non-listed buildings have been since 1984. The Budget announcement changes none of that, although a zero rate currently applies to alterations to protected buildings—mostly listed dwellings but also scheduled monuments and listed buildings used for charitable and other residential purposes.
For listed buildings, the borderline between alteration and repair or maintenance is a major source of confusion. The Budget announcement has no impact on the repair and maintenance of listed buildings, which have always been liable to VAT, so there will be no change to the VAT treatment of repairs to thatched roofs or steeples, contrary to what has been reported in the press. The Budget decision also reflects our view that grants can provide a more flexible mechanism than VAT for providing specific financial support for the heritage sector. We have increased the funding for the listed places of worship scheme and broadened its scope so that churches and other listed places of worship can claim grants to offset the impact of VAT on their alterations, repairs and maintenance.
The Budget proposal for alterations to listed buildings includes transitional arrangements, and, following the consultation, we have decided to make these more generous. As with the Budget proposal, the transitional arrangements will cover cases where written contracts had been entered into before Budget day 2012 or, in the case of the first grant of buildings that have been substantially reconstructed, where 10% of the work had been completed before Budget day. We have now agreed that they should also apply where listed building consent had been applied for before the Budget, and the transitional arrangements will be extended so that, where a project qualifies, zero rating can apply until 30 September 2015. These extensions will mean that the zero rate will continue to apply for most alteration projects where work was close to starting at the time of the Budget announcement.
Let me turn to the Budget proposal for self-storage.
Catherine McKinnell
I apologise for interrupting the Minister’s flow, but I want to take him back to listed buildings. He spoke about grants being available to churches for alterations and repairs. However, my understanding is that there is concern that what is proposed is more of a rebate or reclaim of tax spent, rather than a grant that would be available before the alterations and repairs are undertaken. Will he clarify what the position will be?
Mr Gauke
The first point to make is that the increased funding for the listed places of worship scheme was entered into after consultation with the Church of England, which led for other religious groups in this matter, and I understand that they are satisfied with the arrangements that have been reached. The listed places of worship scheme, which the previous Government set up, has been extended to allow recovery costs relating to VAT for both repairs and alterations. It offers church groups, for example, an opportunity to recover the costs they would otherwise incur, but is now much more generously funded, and a much greater proportion of VAT costs will be able to be reclaimed. Indeed, VAT costs should be able to be reclaimed in full for the time being, such is the scale of the support we have made available for the listed places of worship scheme.
It is perhaps worth pointing out that we always made it clear that we would increase the listed places of worship scheme, because of the increased costs that were going to be placed on churches, but after further discussions, with the Church of England in particular, we realised that the amount we had initially said would be adequate was not adequate, and we increased it. However, to deal with the hon. Lady’s specific question, what is proposed is indeed a reclaim arrangement. That is how it will work, and that is how it worked in the last Parliament as well.
Catherine McKinnell
Will the Minister clarify, therefore, whether he has received any expressions of concern about churches, which often rely on fundraising to undertake works, having to raise additional money, which they will then have to reclaim from Her Majesty’s Revenue and Customs, or about the additional burden that this will place on what are already quite stretched resources?
Mr Gauke
I understand the point the hon. Lady raises. The Church is satisfied with the arrangements. She is suggesting that in order to fund a project, a church group would need to fund the cost, plus 20%. That is not how it should work, because the scheme will be sufficiently flexible to ensure that a church group will have the funding in time, so that it does not have to raise an additional 20% or so. I have had considerable conversations with Church representatives on this issue, and I am not getting representations that they are concerned about that point.
Catherine McKinnell
I have just one last question about this issue. Has HMRC undertaken any assessment of the additional bureaucracy and administrative costs that will result from all churches having to engage in the process?
Mr Gauke
The advantage of the way in which we have introduced this measure—through the listed places of worship scheme—is that there is already a mechanism in place for providing grants for repairs. That is something we inherited, and although I cannot say this about everything we inherited, it is quite helpful. We anticipate that there will be a monthly repayment process through the listed places of worship scheme. With regard to the hon. Lady’s concern about cash flow, the main point to make is that the Church is content with the arrangements.
Jim Shannon (Strangford) (DUP)
I thank the Minister for his clarification on that matter. I understand that if churches want to reclaim VAT in such circumstances, such a claim will have to apply to work on the footprint of the original construction. When work is done not only to the old part of the church but also to the new, will it be possible to differentiate a claim so that the work done on the old part and that carried out on the new extension can be treated differently?
Mr Gauke
The arrangements that will be in place following the legislation will mean that repairs and alterations will be chargeable for VAT. However, the listed places of worship scheme will apply to both types of work. It has been the case for some time that repairs involved the payment of VAT. The listed places of worship scheme will enable people to reclaim the VAT costs relating to those repairs. An extension—which is an alteration, rather than a repair—will now have VAT charged to it, but it will be possible to reclaim it through that same scheme. The scheme is now more generously funded than it was before the Budget, which means that a higher proportion of the costs that the churches would have incurred will now be able to be reclaimed. We have taken steps that the churches have widely welcomed.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
I am sorry to have missed the beginning of the Minister’s remarks on this subject. I was actually checking up on certain aspects of a similar issue in my constituency. He said that the Church of England was content with the arrangements, but I hope that he will accept that it is not just the Church of England that is involved. I have a lot of churches, places of worship and listed buildings in my constituency, and I have been contacted by a church that was in the advanced stages of preparing to carry out work that could be seriously affected by the proposals. Will the Minister guarantee that, if the funding for the scheme does not meet the requirements, he will look again at the level of funding provided? Will he also monitor the scheme closely to ensure that no extra bureaucracy is introduced that could delay projects that would otherwise go ahead?
Mr Gauke
The hon. Gentleman is absolutely right to say that not just the Church of England is involved. I said earlier, however, that the Church of England had led on behalf of all the churches on this matter. On his second point, we have made the transitional rules more generous for churches that were close to commencing work at the time of the Budget. I obviously cannot comment on the specific case in his constituency without knowing all the details, but I think that he will find that many cases in which plans had reached an advanced stage will benefit from the transitional rules. He mentioned the funding for the scheme. We believe that this is a generous settlement, but we will of course keep such matters under review. He also mentioned bureaucracy. The scheme is organised by the Department for Culture, Media and Sport, but the Treasury will also take a close interest in it. The two Departments have worked together very effectively on this matter, and we are keen to ensure that the scheme works in an adequate way. I would underline the point that the representations that we have received from the churches suggest that they are happy with the arrangements.
Mr Frank Field (Birkenhead) (Lab)
The Minister says that the two Departments are now working closely together on the scheme. Was there a similarly close working relationship when the Treasury was thinking up the proposal? Did the DCMS know about the proposal and approve it—before it was modified, of course?
Mr Gauke
The right hon. Gentleman is attempting to draw me into dangerous, and perhaps more interesting, territory. All I would say to him is that all decisions are for the Chancellor, although of course the Department for Culture, Media and Sport was involved at an appropriate level.
The Budget proposal for self-storage changed the liability of supplies of facilities for self-storage from exempt to taxable. Following consultation, we planned to avoid creating a competitive advantage for those larger operators with more expensive facilities. These businesses can partially mitigate the impact of the change by using the capital goods scheme to claim back some of the VAT they had previously paid on the purchase of these facilities, whereas smaller businesses with less expensive facilities cannot. We will therefore make a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure whose individual capital items are worth less than a £250,000 threshold for the scheme can opt into it and have the same input tax recovery benefits as larger providers with capital items that would already qualify for the scheme.
We also propose to ensure that the storage of live animals will remain exempt, as the original proposal might inadvertently have applied VAT to stabling, and we propose to introduce an anti-avoidance provision so that if the storage is used by a third party with the permission of the person who contracts for the storage, it is taxed in the same way as if it were self-storage. This will prevent someone from avoiding taxation by getting a third party to contract with the supplier. We have revised the exclusion for storage facilities provided to persons connected with the supplier so that it is more directly targeted on facilities that are subject to the capital goods scheme. This fine-tuning reflects the benefit of consulting and listening to what respondents say, but it does not undermine the rationale for the measure.
For hairdressers’ chairs, the schedule provides a clearer description of the services typically provided under a chair rental agreement and excludes services that could legitimately be provided with a simple supply of a right over land. The schedule also reflects a change to make it clear that the supply of a whole building to a hairdresser will not become taxable unless it is supplied along with other goods or services.
Finally, regarding the measure to apply VAT to all sports drinks and to clarify the definition of premises for the purposes of determining whether food is consumed on or off the suppliers’ premises, we are proceeding as planned in the Budget.
Nigel Mills
I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit less nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?
Mr Gauke
I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Will the Minister provide a bit more clarity, as I believe the industry has been extremely concerned about the definition of a sports drink as opposed to sports nutrition products? I understand that some drinks would not be caught within the definition, but that some products legitimately used by athletes—by weight-lifting participants, for example—would be. Given the concern about it, further clarification from the Minister would help.
Mr Gauke
The broad point is that sports drinks—such as Lucozade and others—are standard rated and have been for some time, and that sports nutrition drinks marketed as such will now become standard rated. We believe that that is fair. These products can be distinguished from a pint of milk or a milk drink not designed or marketed for sports nutrition purposes. Nothing in the consultation responses calls us to query the rationale for the measures or to amend the draft legislation other than through a minor amendment to tidy up the wording.
Catherine McKinnell
Can the Minister reassure me that his proposal will not lead to the same riddles and illogicalities that arose from the original pasty tax proposal, meaning that the same product marketed or packaged in a different way could end up attracting a different rate of VAT? Will he also tell us what consultations he has had with the industry?
Mr Gauke
We have completed a period of consultation and received a number of representations. In recent days, I have met representatives of GlaxoSmithKline and listened to their concerns. As for the hon. Lady’s first question, when products are aimed at different markets but clearly targeted at particular consumer groups, I think it reasonable to view them in the light of some of the competing products that are aimed at exactly the same market. Our research suggests that most sports drinks are clearly targeted at particular markets, and their VAT treatment will follow from that.
Catherine McKinnell
The Minister has not really explained why the Government should want to target a sports industry or sports-related products for tax purposes when much more unhealthy products might remain tax-free. Will he clarify that?
Mr Gauke
If the Opposition are setting out the principle that whether or not VAT applies should depend on the healthiness or otherwise of the products involved—which brings us back to hot food—we may have to engage in a slightly different debate, and I am not sure that either of us wants to go in that direction.
Catherine McKinnell
I am happy to clarify the fact that I am not setting out any particular policy position on whether sports goods or health products should be targeted for tax. However, the Minister appears to be saying that although the milk that is marketed for general consumption is VAT-free, if it is marketed for sports-related consumption it will be subject to VAT. Will he explain that policy?
Mr Gauke
VAT is charged on all beverages. Typical sports drinks which are consumed primarily to rehydrate or quench thirst are already taxed accordingly at the standard rate, but some sports drinks companies have won court rulings that their products are not beverages because of their nutritional content and because they are not designed to quench thirst. The changes that we are introducing will ensure that all sports drinks are subject to the same VAT treatment whether they are consumed for rehydration or for nutritional purposes, because they are targeted at much the same group, and we think it only right to apply the same approach to consumers. The argument for the zero-rating of food is that it should apply to everyday essentials, but it is difficult to apply that argument to sports and nutritional drinks.
Julie Hilling (Bolton West) (Lab)
I am desperately trying to understand what the Minister is saying will happen to sports and nutrition products. Is he saying that all drinks will now be subject to 20% VAT? What about other nutritional products that are not sold in liquid form?
Mr Gauke
Let me try to be helpful to the hon. Lady—not for the first time during our deliberations, I hope. We propose that drinks aimed at the sports nutrition market will be standard rated. We are not applying the same approach to meal-replacement drinks. There is a clear distinction between them, as one is more closely aligned to food than to sports drinks.
Mr Speaker
I am sure we are all indebted to the Minister for the informative character of his contribution —and, of course, for his oratory.
Catherine McKinnell
I will speak to new clauses 10 and 12, as well as the Government amendments that the Minister has already set out for us in quite some detail today.
The Opposition’s new clause 10 seeks to put a stop to the chaotic farce of ill-thought-through VAT changes being slapped on items from the pasty to the caravan, from haircuts to church alterations—imposed, defended, downgraded and then, in some cases, eventually quietly removed by Ministers during the parliamentary recess, once they realised quite how ridiculous the changes were to begin with, particularly given the current economic climate. We simply ask the Government not to meddle with VAT exemptions until they have carried out a proper assessment and worked out exactly what the impact of any change would be on jobs, living standards and businesses.
We assume that, before imposing a 20% tax, the Government will do their sums, work out who would be affected, consult them and think long and hard about whether such a change was a good idea. Our new clause 12 seeks to reverse the VAT bombshell, which, as I am sure many Members will recall, the Liberal Democrats shouted so loudly about before the election, and before they all subsequently discovered that they actually supported raising the 20% rate after all. That was a surprise all around, even to themselves, I think. In fact, everyone’s surprise about that was surpassed only by the discovery that the Liberal Democrats had also been in favour of £9,000 tuition fees all along.
Labour is clear that higher VAT hits the poor harder than the rich. It drives up the cost of living at a time when people are already feeling the squeeze, and it takes money out of people’s pockets and off the high street at a time when businesses are crying out for spending to drive growth. Our five-point plan for jobs and growth calls for VAT to return to 17.5% on a temporary basis until the economy is strong enough to cope with a rise. That would give £450 a year back to couples with children, to give the economy a boost and to drive growth.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The hon. Lady will of course recall that we had this exact same debate during last year’s Finance Bill, and when the House divided on a Plaid Cymru-Scottish National party motion her party abstained. Can she explain her party’s damascene conversion in tabling the same amendment to this year’s Finance Bill?
Catherine McKinnell
Can the hon. Gentleman clarify whether he is talking about the debate that we had on raising VAT from 17.5 to 20%, because that is what we are addressing today?
Jonathan Edwards
An amendment last year sought to do exactly what the measure she is arguing in favour of would do. That was presented to the House by Plaid Cymru and the SNP, and the Labour party abstained.
Catherine McKinnell
I thank the hon. Gentleman for that clarification. I do not have the full details of the intricacies of that particular debate, but I know that what I am proposing is our policy and we support it. We are going to vote today for this measure to reduce VAT to 17.5%.
Catherine McKinnell
That is an interesting question, coming from a Minister who has just justified a temporary delay of the rise in fuel tax that is apparently to be paid for by underspends that are not quantified by the Government, who are in a much better position to provide detailed costings to the House but cannot for their own tax reductions. We have said all along that the Government’s current policies are costing the taxpayer more. Borrowing is increasing, not reducing—the Government are borrowing £150 billion more over the spending period—and the benefits bill is sending the economy backwards, not forwards.
Catherine McKinnell
I have just answered it. I would be grateful if the Minister could similarly provide detailed costings as to where the Government’s tax reduction for the fuel relief is going to come from. If he were able to do that, we could certainly provide detailed costings of our tax proposal. The point is that the reduction to 17.5% will put money back into people’s pockets, get the economy moving and get growth back into the economy. That will help to bring down borrowing, which is increasing at the moment.
Gavin Williamson (South Staffordshire) (Con)
Can the hon. Lady quantify, for the benefit of those in the Chamber, how much that 2.5% reduction would cost?
Catherine McKinnell
I repeat what I said before: the Government’s current policy of increasing VAT to 20% is taking money out of people’s pockets and is causing a slump in demand. It is very strange that these questions are coming from a Government who are borrowing more than they intended over the spending period, not less.
Stephen Gilbert
The hon. Lady mentioned a figure of about £400 a year. What I missed, and what I am hoping she will be able to clarify, is whether that is per person or per family. If we knew that, we might all be able to do the maths as to how much this measure would cost the Exchequer.
Catherine McKinnell
The figure that the hon. Gentleman is looking for is £450 for a couple with children. It would put money back into their pockets, boost the economy and drive growth. Let us not forget that the Institute for Fiscal Studies has predicted that the Government’s tax credit changes will mean that families will be £511 worse off this year and £1,250 a year worse off by 2015.
Andrew Percy
Who would benefit more from a VAT cut, a family earning just above the minimum wage or a millionaire?
Catherine McKinnell
Clearly, a family would gain more from a VAT cut because they spend much more on VAT as a proportion of their household income. The hon. Gentleman’s indignation at that response demonstrates just how much the Government are out of touch with the reality of the effect of their spending plans on households and household incomes. That would explain why this economy is going backwards rather than forwards under the Government’s plans.
Julie Hilling
Does my hon. Friend find the interventions of Government Members bizarre? The Government inherited a growing economy and we now have a double-dip recession created totally in Downing street by their efforts to have no other aim than driving down the deficit. They are stifling growth and making ordinary families pay the cost of their economic failure.
Catherine McKinnell
I thank my hon. Friend for that intervention and think that the response from Government Members is deeply worrying, as it shows worrying complacency about the direction in which they are taking this country and about the decisions they are making on the economy, which are making things worse, not better.
Our new clause 12 would reverse the VAT rise immediately and prevent it from rising again—I emphasise this point—until the Government can show that our economy is growing strongly again. That is the right move to get our economy back into growth and out of this double-dip recession. I also want to put on the record that we will oppose the Government’s new schedule 1, which would bring in ill-thought-through and unwelcome VAT changes that, despite the concessions, are still wholly unsatisfactory.
Diana Johnson
Does my hon. Friend share my concern that the proposals in schedule 1, especially those on the caravan tax, seem to have taken no account of job losses or of the effect on demand when we are in a double-dip recession and will cost the Exchequer more than it would gain in revenue?
Catherine McKinnell
I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.
Nigel Mills
New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?
Catherine McKinnell
I could probably answer the hon. Gentleman’s question with just four words: “out of double-dip recession.”
The Government’s economic credibility, not to mention any reputation for competence they might have had, has taken a massive hit over the VAT changes. They put VAT on pasties and took it away. They put VAT on caravans, then they reduced it to 5%. They put VAT on churches and kept it. Then they invited payment of the charge up front. Churches could claim it back by submitting forms to the Treasury for access to a special fund, which essentially is a big pot of all the money that they paid up front in the first place. What a shambles. Do the Government even know what they are doing any more? They say that their U-turns show that they are listening. When they got it so horrendously wrong, it is good that campaigners were able to get through to them.
I know that hon. Members on both sides of the House have worked hard to get the Government to listen on the subject of the VAT changes, but is it not all too serious to be left to second chances? Do not the people of this country deserve a Government who can get it right first time? People saw in the Budget a true reflection of a Chancellor who tried to sneak through thoughtless changes and got found out.
Let us look at some of the Government’s tax changes. The selection speaks volumes about this Government. They gave a tax cut to banks and to millionaires, but showed no mercy to people who eat pasties. The pasty tax will go down in history as one of the most incompetent Government debacles ever. The attempt to raise the price of pasties and sausage rolls by 20% was claimed to be necessary to close an anomaly, but was universally seen as evidence of an out-of-touch Government trying their luck and grabbing tax on a food that Ministers never eat. The Save Our Savouries campaign run by The Sun pointed out that caviar is still VAT-exempt. Perhaps we can learn something from that. Perhaps the Minister will comment on that in his concluding remarks.
The Prime Minister told us:
“I’m a pasty eater myself. . . I love a hot pasty”,
but he gave himself away when he said that his last pasty was from a shop that turned out not to exist. It was just one gaffe after another. The Chancellor ended up giving evidence to the Treasury Committee on how to tell whether a pasty was hot or cold. Members pointed out that because products would be subject to VAT if they were above ambient temperature when bought, pasties could cost different amounts on summer and winter days.
Stephen Gilbert
Notwithstanding some of the flaky accusations the hon. Lady is making against the Government, can she explain why Labour Members will not join in supporting the Government on new schedule 1, which addresses the concerns that were expressed during the consultation process?
Catherine McKinnell
Our position is that we would like none of the VAT changes to be introduced so by voting against new schedule 1 today, as I have already explained, we vote against all the VAT changes.
As was pointed out, if the pasty counter was near the oven, the ambient temperature would be higher. If it was near the chiller, the ambient temperature may be lower. Greggs’ official consultation document asked whether servers would ultimately have to take the temperature of both the pasty and the surrounding air to determine whether a 20% surcharge should be applied. The proposal was universally and rightly rounded on as ridiculous. Ken McMeikan, the chief executive of Greggs the bakers, which I am proud to say is based in my part of the world, Tyne and Wear, deserves a mention for his excellent campaign against the pasty tax. A massive £30 million was wiped off the value of the company in the week after the Budget as orders were threatened and jobs put at risk. Along with several hundred other bakers, Mr McMeikan delivered a petition to 10 Downing street. He told Ministers:
“we are the voice of half a million people. We embody their resentment at what this Government is trying to impose against the people’s will. . . ordinary hard working people simply do not want this pasty tax.”
I visited a local school breakfast club with Mr McMeikan and I know just how committed Greggs is to local schools and community projects. It did not deserve to have its business torpedoed by Ministers who are too out of touch ever to have eaten one of its products. Eventually the Government backed down on the pasty tax—they had to because that was the only move they could make—but they left behind them a legacy of arrogant disregard for ordinary people that will not quickly be forgotten. My only hope now is that the U-turn that has been made will be made properly. Representatives of Greggs are still raising concerns that the new wording of the regulations on hot food now state that VAT should be charged if it
“is provided…in packaging that retains heat (whether or not the packaging was primarily designed for that purpose)”.
The hon. Member for St Austell and Newquay (Stephen Gilbert) raised the matter with the Minister, but his answer did not provide certainty, so I would be grateful if he would clarify in his reply exactly how the Government will ensure certainty for this slightly battered production market.
Any sort of paper bag or wrapping could inadvertently help to retain heat, so there is a danger that pasties could still be caught in the regulations and that this whole incompetent mess of U-turns and retractions will all have been for nothing. I hope that the Government will take the opportunity to clarify that point and reassure Greggs and other bakers up and down the country that supplying customers with paper napkins, for example, which could inadvertently slow down the cooling process, will not result in an extra 20% charge for their customers.
Greggs would like confirmation, as I am sure would other bakers across the country, on whether taking trays of baked products from the oven and stacking them in counters that have no other means of heating or heat retention would be considered to be slowing down the cooling process. The practice is used by bakers to minimise food handling and the number of trays in use, but there are genuine concerns in the industry that it could constitute slowing down the cooling process and so incur a VAT charge.
The Government’s second U-turn was on their attempt to charge 20% VAT on static caravans—[Interruption.] I am asked from a sedentary position “Are you only on the second U-turn?” Yes, I am. I venture to guess that caravan holidays, like pasties, are not familiar to most members of the Cabinet. They saw an opportunity to take some extra tax and went ahead without considering the impact on individuals, jobs, growth or tourism. Because of the huge campaign mounted against the policy—I pay tribute to Members on both sides of the House for that, particularly hon. Members who represent the Hull constituencies, who are particularly concerned about the impact on jobs in their area—the Government backed down, but they are still trying to impose the 5% charge, as the Minister set out in more detail earlier.
The Treasury’s own figures show that 20% VAT on static caravans would result in a 30% fall in demand. The industry estimates that it would result in 1,000 job losses in manufacturing, excluding the supply chain. We know that at least one factory in the supply chain, Willerby Holiday Homes, put all 700 of its staff on a 90-day consultation as a direct result of the Government’s announcement that it would levy 20% VAT on its product. The National Caravan Council states that 4,300 jobs might be lost in holiday parks, plus another 1,500 jobs from associated suppliers.
I appreciate that the Minister has sought to give some reassurances on the change and indicated that the Government are listening, to the extent of reducing the VAT rate to 5%. However, he has made it clear today that no actual calculation has been made on the potential impact of the 5% charge, which is of great concern. Even the reduced charge of 5% will mean either that caravan holidays will become more expensive for holidaymakers or that holiday parks will be forced to absorb losses and job cuts. At a time when consumers are already severely squeezed, many people will simply have to go elsewhere. In turn, the whole economy of holiday towns would be hit, with shops, pubs and attractions losing their main business. Is that really what the Government intended?
Catherine McKinnell
I would be delighted if the hon. Gentleman would answer.
Mr Stuart
I am grateful to the hon. Lady, who is being most generous in giving way. I ask her to note that the National Caravan Council, the industry body, and the British Holiday and Home Parks Association have welcomed the 5% rate. They feel that the Government did listen and that the industry can take on that burden as part of the whole national effort to tackle the vast deficit her party left behind when it left government.
Catherine McKinnell
I am pleased that the industry is “delighted” with a 5% increase in VAT on its products. That is surprising in the circumstances.
Catherine McKinnell
I give way to my hon. Friend the Member for Kingston upon Hull North (Diana Johnson), who wanted to intervene earlier.
Diana Johnson
I would not say that the industry is “delighted.” I think that it accepts the measure, on the basis that it was very concerned about the 20% figure. My concern as a constituency MP, with 90% of static caravans being built in Hull and the surrounding area, is that there are 43.6 people chasing every vacancy in my constituency. That is the highest figure in the UK, and any job losses are going to be very difficult for my constituents, so that is why I am pressing the Minister to be very clear about the number of job losses that the 5% imposition will bring about. Will the shadow Minister comment on my concerns?
Catherine McKinnell
I thank my hon. Friend for that rational and considered intervention and appreciate that the industry is willing to accept the change, as it is much easier to bear than the original suggestion of 20%, but that is the point I seek to make. The Minister in his opening remarks confirmed that no assessment has been made of the impact of the 5% increase on the industry, and that is gravely concerning, because, as the hon. Member for Brigg and Goole (Andrew Percy) suggested, the industry needs certainty, security and stability to create the jobs that my hon. Friend is so concerned about.
The fact that the proposal is being put in place without a proper assessment of what is a lesser impact but still one of 5% is deeply concerning, because the last thing the industry needs is for the measure to be reviewed 12 months down the line, be seen to have had a detrimental impact, and for it to have to go through the whole process all over again.
Brandon Lewis
I thank the hon. Lady for her generosity in giving way. In Great Yarmouth, I represent a £500-million-a-year tourism industry, with about 50% of our bed space in static caravans. Our industry was concerned, but its message to me is that it thinks the 5% rate is not only fair, but better than it had hoped for.
The industry understands the arguments that everyone has to do their bit and that there has been an anomaly for a long time, and feels that the measure is manageable, will not have an impact on its business and is fair. We are very pleased, in fact, that we finally have a Government who say that they will consult and listen, do so and come back with exactly what the industry wants.
Catherine McKinnell
The only point I can make is that the industry suffered the serious blow of having a 20% tax announced. That has been reduced to 5%, which it will obviously welcome, but we propose to remove the VAT changes altogether, because at this particular time the last thing that any industry needs, but particularly the holiday, static caravan and manufacturing industries, is a VAT hike. We need to invest in jobs and growth to get the economy moving, to get out of the double-dip recession that we are in and to get back into growth.
Sheila Gilmore (Edinburgh East) (Lab)
Does my hon. Friend share my astonishment at the previous intervention? If the proposal to impose that VAT rate had never been made, there would have been no need for consultation or listening—and it would have been far better to have consulted first. What happened to the notion of a proper pre-Budget report, where suggestions could have been made in general terms and then we could have had a consultation? We all sat here listening to a very strong defence of the original proposals only a few months ago.
Catherine McKinnell
My hon. Friend speaks a lot of sense and makes her point very forcefully. The Government seem to have tax-grabbed first and consulted later. They have sneaked through changes—the ones they have got away with, they have pocketed and the ones they have been seriously challenged on, particularly by their own Back Benchers, they have had to relent on. But that is no way to conduct tax policy or business.
Julie Hilling
Is my hon. Friend as confused as I am by Government Members saying that their local manufacturers were asking for a 5% increase and demanding to be charged VAT? That is what it sounds like.
Catherine McKinnell
I made that very point when I expressed surprise at the impression being given that the static caravan industry warmly embraces and welcomes the change. A more rational description is that the industry accepts it as a much better deal than the one they were originally given by the Government—a slapped-on VAT increase to 20%, which would certainly have had an impact on jobs and compounded the lack of growth in the economy.
Once again, the change was announced during a parliamentary recess, the same day as the U-turn on the dreaded pasty tax. As Parliament was not sitting, there was no opportunity for the House to scrutinise the details of the Government’s plan—details such as where the money to pay for the change of heart would come from. The Government have yet to provide an answer to that question. We know the money will come from “underspends” in unidentified Departments, but we do not know where those underspends have occurred, whether they were planned, or why the coalition’s No. 1 priority of deficit reduction is no longer the default destination. The two measures—pasties and caravans—were supposed to raise £70 million, which is now unaccounted for. I hope that someone somewhere knows how to make up those sums. Many ordinary people consider £70 million quite a big hole to fill. How do Government plan to deal with it?
The third U-turn is the Government’s partial reversal on the so-called church tax. Ministers claimed that, in future, VAT would be payable on alterations to listed buildings, which are currently exempt. Of course, as the Government acknowledged today, half the listed buildings in this country are owned by the Church of England, which pointed out immediately that the change would cost it at least £20 million. Many churches collect donations from their congregation to pay for necessary alterations—often basic alterations, such as to provide a toilet and to ensure that the whole community can access the building. Without greater reassurances, the Church told the Government, the extra 20% payable would result in projects already scheduled having to be cancelled, and many of those projects were part of initiatives that churches had been encouraged to undertake through the big society.
The Government did not agree to a U-turn as such. I imagine they felt a bit embarrassed by that point, although that did not stop them performing another U-turn just days later—again, when Parliament was not sitting—on the charity tax. Instead, when they realised how hard churches would be hit, they agreed to give an extra £30 million to the listed places of worship scheme, so that churches could claim the money back in grants.
It is welcome that churches will no longer be hit with the huge extra cost of VAT, but my understanding of the Exchequer Secretary’s comments today is that churches will be asked to pay the VAT up front, then claim it back. They will have to raise the money to pay for the work they need to carry out, then wait for months to—hopefully—get it back. The hon. Gentleman says that measures have been put in place to make sure that churches do not suffer cash-flow problems, but I am not clear how much reassurance that provides. If he gives more detail when he winds up the debate, I am sure the House will be grateful. For a Government who say that they are waging war against red tape, it seems a bureaucratic process to put in place. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) raised concerns not just about the bureaucracy for HMRC and the Treasury in processing the payments and rebates, but the bureaucracy for the churches, which could well do without it.
I also understand that, contrary to what the Minister said about the Church of England’s being entirely happy with the proposal, many churches have expressed concern that the uncertainty would put them off accessing the scheme and relying on the VAT rebate. Churches could be deterred from undertaking necessary alterations and repairs. The other concern is that the measure does not help non-religious listed buildings, which still have to pay the 20% tax. Many people will choose not to go ahead with their projects. Among other things, that will hit jobs in the construction industry, and we all know how hard that has been hit by the downturn and the double-dip recession. It is an extra setback for that industry that listed building projects will not go ahead because of the 20% increase in cost.
We have seen at least partial U-turns on the pasty, the caravan and the church, but the Government have refused to budge on two issues. Sports nutrition drinks are still being subjected to a 20% price hike while sugary milkshakes will still be VAT exempt. The Government want to put VAT on sports drinks that are advertised or marketed
“as products designed to enhance physical performance”
or “accelerate recovery after exercise”.
The Minister sought to provide clarification for the Opposition, but I, for one, am none the wiser about the rationale behind the policy. No rationale has been offered for why a sports drink designed to provide and facilitate exercise and fitness should be targeted for VAT while drinks laden with refined sugars and fats are still exempt. Moreover, as my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) said earlier, the industry has raised serious concerns about whether milk and milk products will unintentionally be caught up in the ruling. From the Minister’s comments today, I wonder whether that is unintentional at all.
We all remember the “Make mine milk” ads in which well known sportspeople such as Denise Lewis promoted the benefits of milk for sport. If milk has been marketed as something that enhances physical performance and sporting prowess, will the Government levy VAT on it? My understanding from the Government’s comments today is that they would. There is no indication about how the anomaly would be resolved by the Government or whether they even have an issue. For that reason, we will vote against this shambolic VAT reform.
The final issue on which we have concerns is the VAT levied on hairdressers’ chairs. The Chancellor wants self-employed hairdressers to pay 20% VAT on hiring a chair in a salon. With the cost of chair hire up, hairdressers will have to choose between passing the cost on to their customers or absorbing it themselves. Industry data show that that will disproportionately hit small businesses and their customers, especially women between 16 and 44 years old. Why do the Government think that a good idea?
If the measure is just another routine closing of an anomaly, have the Government considered who they are hitting with it and why? I am truly concerned that the measure looks as if it was worked out on the back of an envelope, without any consideration of how many jobs it might cost. Our amendment would force the Government to consider carefully the impact on jobs and growth before imposing VAT on any previously exempt products. It is not clear that they have given any thought to the change that I have mentioned.
Steve Rotheram (Liverpool, Walton) (Lab)
On haircuts, I wonder whether the increase in VAT in the case of hairdressers will precipitate a return to hairstyles such as the one that I currently sport.
Catherine McKinnell
My hon. Friend read my mind as I gazed across the Chamber.
Giving a tax cut to millionaires and the banks but making it harder for self-employed women and their customers reveals a Government who are, once again, truly out of touch with ordinary people’s lives. New clause 12 seeks to go further on VAT and create a temporary reduction in the rate from 20% to 17.5%. The Liberal Democrats ran for election on a manifesto that warned of the dangers of a VAT rise with their pledge to protect constituents from the “VAT bombshell” threatened by the Conservatives. The Deputy Prime Minister pledged:
“We will not have to raise VAT to deliver our promises…Let me repeat that: Our plans do not require a rise in VAT.”
Why were they so against VAT? Perhaps it is because the evidence clearly shows that people on lower incomes are hit proportionately much harder than the rich by VAT because they tend to spend more of their income rather than save and invest it. Government Members will claim that, looking at different measures, more VAT is paid by the rich—the hon. Member for Brigg and Goole (Andrew Percy) fell into that trap—but there is absolutely no doubt about the fact that VAT is regressive and that those on lower incomes spend a higher proportion of their income on it than those on higher incomes. Even the Prime Minister agrees. In 2001, he said:
“If you look at the effect...as compared with people’s income then, yes, it’s regressive”.
Jake Berry (Rossendale and Darwen) (Con)
Does the hon. Lady concur that those on lower incomes pay a higher proportion of their income on fuel, and will she therefore welcome the postponement of the 3p increase in fuel duty?
Catherine McKinnell
I not only welcome it but point out that we proposed it, and the Chancellor shortly followed us on the same day. Our proposal to bring about an immediate reduction in VAT to 17.5% would deliver that 3p fuel duty reduction for drivers and put money in their pockets not only in respect of fuel but right across the board. It is a measure that is absolutely required to turn our economy round from the double-dip recession we are in.
Stephen Gilbert
Is not the real VAT bombshell the fact that the hon. Lady does not know how much this policy would cost Her Majesty’s Treasury? In the hour or so for which she has been talking, has she had any inspiration from colleagues?
Catherine McKinnell
As I said, it is the Government’s job to work out the cost of any tax changes or spending commitments, and they have not even been able to provide answers as regards their own fuel duty reduction.
Mr Gauke
As the hon. Lady says that it is the Government’s job, let me tell her—I do not want to keep her in suspense —that her policy of reducing VAT to 17.5% would cost £12 billion to £13 billion a year. Does she dispute that number, and can she explain how she is going to pay for it?
Catherine McKinnell
If our policy turns the trajectory of the economy around from one of recession to one of growth, then clearly it will pay for itself and bring down the benefits bill, which is currently going up.
John Mann (Bassetlaw) (Lab)
I would like clarity on what the Opposition’s policy is. [Interruption.] I can hardly hear myself think. Is it our policy that VAT will be permanently reduced to 17.5% or that the reduction will last for 12 months and then it will go back up to 20%?
Catherine McKinnell
We are suggesting—we hope that the Government will jump on our way of thinking, as they did with the delay in the rise in fuel duty—an immediate reduction to 17.5% until we get the economy back into growth.
Catherine McKinnell
It all depends on how long the Government take to get the economy back into growth. The reaction of Government Members seems strange, when they are driving the economy into recession rather than into growth.
Andrew Percy
The hon. Lady will be aware that the temporary reduction under the last Government had a significant cost impact on a number of businesses. If the economy suddenly went into growth in the quarter following the reduction, would she expect businesses to take the burden of the costs of implementing the reduction and then unimplementing it in two successive quarters?
Catherine McKinnell
The hon. Gentleman is getting ahead of himself, given that we are in a double-dip recession, that growth has stalled, that all the predictions of the Office for Budget Responsibility are being revised down day on day, and that borrowing is going up. Everybody agrees that we need demand in the economy. The way of generating demand in the economy is to put money back into people’s pockets. I remind hon. Members that before the increase in VAT, the economy was on a trajectory of growth. That was before this Government took over and brought in their disastrous austerity policies.
Sheila Gilmore
Does my hon. Friend agree that the Minister’s figures assume that when VAT rises or falls, it has no impact on people’s expenditure? The thrust of what we have been saying, not just in response to the Budget, but for several months, is that the rise in VAT has dampened demand. The tax-take in May, for example, was down by 7%. Far from a static amount of money being drawn in, a VAT reduction would increase demand and, ultimately, increase the tax-take.
Catherine McKinnell
I thank my hon. Friend for her characteristically rational contribution. I would add that the recent Institute for Fiscal Studies report estimated that the Government’s tax and benefit reforms will make a couple with children £511 worse off in this financial year and £1,250 a year worse off by 2015. It does not take an economic genius to work out what that does to demand in the economy.
The Prime Minister admits that a 2.5% increase in VAT hits the poorest hardest, so what happened to, “We’re all in this together”? I would like to hear an answer on that. As well as hitting poor people the hardest, higher VAT is hitting the economy at a time when we can least afford it. As we have discussed, the Chancellor unveiled a fuel duty cut last week, using mystery funding sources. Dropping VAT could have taken 3p a litre off petrol immediately. Across the board, a temporary cut in VAT would stimulate growth and get the economy moving again. Putting money back into people’s pockets is the only way to support businesses and create jobs—the very things that the Chancellor left out of his mangled Budget. That is why a temporary return to 17.5% is part of Labour’s five-point plan for jobs and growth.
John Mann
Is not another way to stimulate the economy to spend the money on employing the police officers who have been sacked and on reversing the ambulance cuts, the fire service cuts, the Army cuts and other cuts? We could use the £50 billion that a VAT cut would equate to over a Parliament to employ public servants, rather than to cut taxes.
Catherine McKinnell
My hon. Friend makes a valid point. Since June 2011 we have lost more than 100,000 public sector jobs, which means that there have been redundancies at a rate of one a minute since the Government took office. Yet the private sector, which the Prime Minister anticipated would flood in to create jobs, has simply not delivered. It has created only half that number of jobs, leaving the other half of those people on the dole and claiming benefits. That is pushing Government borrowing up, not down.
The measures that we suggest would boost the economy and people’s spending power and ensure that we are not saddled with taxes that no one can afford. We want to see the economy moving into growth again.
Sarah Newton (Truro and Falmouth) (Con)
When I came into the Chamber to listen to the opening part of this debate, I did not anticipate speaking. However, I am very pleased to have caught your eye, Mr Deputy Speaker, because I felt utterly compelled to join in, notwithstanding my current incapacity. It has been an illuminating debate.
I listened to the shadow Minister’s speech and the interventions of her colleagues, and I find it staggering that they are not going to listen to the submissions of my constituents on the pasty tax, caravans or fundraising for places of worship, on which many people work so hard. Oh no—their opinions do not count for anything to the Opposition. They are not going to listen to all the representations that have led to the Government’s sensible proposals. The listening exercise to improve and amend the Budget has led to proposals that respond directly to all the concerns expressed by my constituents, and I dare say by the constituents of a great number of colleagues.
Julie Hilling
I am really very confused. My constituents have been saying exactly the same thing, which is why Labour Members have been arguing against this dreadful Budget in the Chamber, the Public Bill Committee and wherever we can. We have said that the Government should not put VAT on pasties, caravans, hairdressers’ chairs and so on. I agree with the hon. Lady about that. Thank heavens, the Government listened to us a bit in the end, but sadly not enough.
Sarah Newton
It is surprising to me that, as far as we are aware from the comments of the shadow Minister, the Opposition will be voting against the very improvements that the hon. Lady says they have been working so hard to achieve. I do not doubt her good intentions or that she has been working very hard to represent her constituents, but if she was truly doing so, she would walk through the Lobby with the Government this evening, because they have listened thoroughly.
Let us take the pasty tax, for example. It will not surprise Members that I am keen to talk about pasties, because not only am I a big fan and regular consumer of them, but I represent Cornwall, where they are an incredibly important industry. When I listened to the Budget some months ago, it was clear to me that the Government were doing exactly the right thing. They had seen some dreadful anomalies in VAT on food that had led to huge unfairness. Independent owners of fish and chip shops in my constituency had to pay VAT, but other outlets selling hot takeaway foods did not. The Government’s attempt to sort out VAT struck me as perfectly reasonable.
We all know that what is really holding back growth in our economy is that for too long, small businesses have been massively overburdened by a dreadfully confused and muddled-up tax code. Under the last Government, the tax code multiplied and multiplied. We would probably have to use a wheelbarrow to carry all its volumes into the Chamber. The current Government are making a very reasonable effort to simplify some of the taxes that are such a burden on businesses in my constituency. They have listened carefully to the representations that have been made and are now going to create a level playing field for all people producing and selling takeaway food. That will benefit independent bakers in small businesses throughout Cornwall who bake pasties.
Mr Graham Stuart
As my hon. Friend is aware, the Government inherited the largest overspend and deficit in the developed world, so it was right for them to probe every possible area of tax revenue. It was also right for them to listen to people when representations were made and to respect parliamentary democracy. Does she agree that if the Labour party had listened to Back Benchers when it was in power, we would not have got into the mess that we are in and we would not have the vast deficit that the Government are having so valiantly to fight to reduce?
Sarah Newton
My hon. Friend makes his point as passionately and persuasively as always, and he is absolutely right.
To return to pasties—one of my favourite subjects—when I listened to the Budget, it was clear to me that there was a problem with the proposals as they stood. Some of the architects of those proposals clearly did not understand how pasties are baked in Cornwall. Within hours I spoke to my hon. Friend the Exchequer Secretary, who clearly understood the problem that I described to him. He said the Government realised that there could be some complications and unforeseen consequences, hence the reason for their consultation. Colleagues from around the country responded positively to that consultation, and their concerns have now been met.
I am staggered by what the Opposition wish to inflict on our country by not supporting the Government tonight. In the nightmarish scenario that they won the Division, we would return to the situation in which the Treasury wastes hundreds of thousands of pounds of taxpayers’ money every year having to fight litigation cases against multi-million-pound companies that are trying to avoid paying VAT. The extremely complicated tax code that was developed under Labour over its 13 years was a lawyers charter. I have nothing against lawyers—I am married to a very good lawyer—but that ever-increasing and complicated tax code means that, not unreasonably, companies try to avoid paying tax. That causes Her Majesty’s Revenue and Customs to be tied up in court, spending hundreds of thousands of pounds on lawyers fees that it could be spending in a far better way.
It beggars belief, but what the Labour party is saying tonight is, “We are on the side of companies trying to avoid tax. We are on the side of lawyers who are constantly taking HMRC to court.” What a dreadful waste of taxpayers’ money. The Government are trying to have a fair and simple tax system that everybody in the country can understand, so that we are not caught out by those who avoid taxation.
Sheila Gilmore
I wonder whether the hon. Lady has noticed the size of the Bill. It is apparently one of the biggest Finance Bills ever, which suggests that the tax code is being added to all the time. Would it not have been easier for the Government never to have made their VAT proposal in the first place?
Sarah Newton
No. As I have said—very clearly, I hope—the Government’s change will bring about a lot of clarity and be beneficial. For example, new schedule 1 clarifies what constitutes takeaway food and hot food. I accept the point that my hon. Friend the Exchequer Secretary made that we can never be 100% certain that companies will not litigate to try to wriggle their way out of paying their taxes, but the added clarity will be welcome to pasty makers. They will understand the situation that applies to pasties that are made and consumed in the way that they are in Cornwall.
For the benefit of Opposition Members who do not seem to understand what master bakers do in pasty shops in Cornwall, I will explain that each day they get up very early to make high-quality bread, cakes and buns as well as pasties. They cook them on their premises so that they are beautiful and freshly made. Throughout the course of the day, anybody can buy freshly made bread, cakes, buns, scones or pasties. Thanks to the clarification in the new schedule, we can continue doing that in the certain knowledge that we will not pay VAT. Labour Members, however, who, feeling peckish on their way home tonight, decide to pop into the West Cornwall Pasty store, perhaps at the station, will, as in every other takeaway food outlet at the station, quite rightly pay VAT, because those pasties are deliberately kept warm all day long alongside other takeaway food. It is only right and proper, therefore, that they pay VAT.
Jake Berry
Of course, it was not just a pasty tax; it would also have affected the fantastic Cissy Greens pie shop in Haslingden. We are dancing from the River Ogden to the River Irwell in celebration of the fact that we can enjoy our Cissy Greens pies without VAT.
Sarah Newton
My hon. Friend makes a good point. This affects master bakers, whether of pork pies, sausage rolls, steak pies or chicken pies, the length and breadth of the country. Those self-employed, highly skilled master craftsmen can carry on producing their much-loved regional foods, which we enjoy all over the country and which make our country so distinct, as we celebrate our rich and varied food heritage. I hope that that addresses any misapprehensions among Labour Members about the benefits of the pasty tax.
Much has been made of the Government’s U-turns. I welcome having a Government who, when they launch a consultation, as they did after the Budget, actually listen to representations on a range of measures, and I am pleased that the Chancellor is driving our economy in the right direction. We have to reduce our deficit and get our expenditure under control. The hard-working families and small businesses in my constituency understand that, and frankly will feel let down by this retread idea of a 2.5% reduction in VAT—the only proposal we hear from Opposition Members. But, of course, we do not know whether that will be their proposal tomorrow, next week or next month, because the shadow Minister could only say that it was the proposal today. If that is their only proposal and if it is only for today, how can families in my constituency have any confidence that they would drive the economy in a better direction? I am confident that the Chancellor is on the right road, and I am certain that focusing on the Budget, making sensible changes along the way, is the right way to go.
John Mann
Does the hon. Lady agree that it is good news that the Chancellor listened to me on pasties, on caravans—after I invited him on holiday with the Prime Minister and me in a caravan—and on petrol? Does she also agree that it would be even better news if he also listened to me on churches and VAT on listed buildings?
Sarah Newton
I am glad that the hon. Gentleman makes that intervention, because I was going to talk about that issue. First, however, I would like to make a little more progress on the analogy I was drawing to the House’s attention. We all get behind the wheel of a car from time to time—sadly, at the moment, I cannot, but I hope to be back there before too long—and when on a journey we are often certain of our destination, but sometimes we are not as good navigators as we would like and have to put on our sat-nav to help us, and sometimes we get an instruction from that irritating person on the sat-nav saying, “As soon as the road ahead is safe and permits, please do a U-turn.” At that point, do we throw up our hands in horror and say, “Oh, it’s just appalling to have to make a U-turn”, or do we think, sensibly, that to reach our destination in a safe and timely way it is appropriate to make the occasional U-turn? I have no problem with the Government making U-turns if it gets us to our destination in a timely and safe way.
The hon. Gentleman asked me about the changes to listed buildings. Having the beautiful Truro cathedral in my constituency, I was concerned about the proposals and immediately consulted the diocese and a wide range of churches in my constituency about their implications. I brought all that information to the Chancellor’s attention, as, I am sure, did Members across the House, and I was satisfied with his response. The Second Church Estates Commissioner, my hon. Friend the hon. Member for Banbury (Sir Tony Baldry), is to be congratulated on how he co-ordinated all our efforts and on the work he has done with the Church Commissioners and the Treasury. Their solution is both practical and actionable, and has met with the perfect satisfaction of churches in my constituency.
I know that many Members wish to join in the debate, so I shall conclude. It is immensely important that we have a Government who listen, who consult on proposals and who then act on them. Whether on fuel duty, pasty taxes, caravan taxes or fuel taxes, my constituents are immensely pleased and relieved that the Government have listened and helped hard-working people and small businesses during these difficult times.
Mr Frank Field
I want to speak to new clause 3, although it might first be appropriate to pick up on one theme from the speech by the hon. Member for Truro and Falmouth (Sarah Newton). She said she was pleased that the Chancellor was creating a level playing field. Well, if there is any area of the country where it would be difficult to create level playing fields, it would be in Truro. But anyway, I am pleased that she is satisfied.
I wish to make a plea for a level playing field for young people in my constituency and other constituencies who go to sixth-form colleges, and I wish to compare their tax position with that of young people undertaking sixth-form studies in school. In a recent Westminster Hall debate, led by my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett), we discussed how poorer young people in sixth-form colleges or similar establishments were discriminated against in respect of free school dinners compared with young people in school. Here is yet another example of discrimination against young people, depending on the institution they attend.
I plead again with the Government, in respect of VAT, to treat sixth-form colleges as we treat schools with sixth forms. In Birkenhead, most pupils have no option but to attend sixth-form college if they want to undertake post-16 studies because the sixth forms of most of the schools were pooled together in that one enterprise. The VAT on services that the college purchases, but which schools do not pay, adds £300,000 to the college budget—a reduction of 4% in that budget.
My plea to the Chancellor will be brief and simple;I will not go up and down the country lanes, visiting various constituents, bakers and so on. He hoped to create a level playing field for taxation for sixth-form colleges and sixth forms in schools by the end of the Parliament. That was a noble objective, but the 2015 election, as it draws ever nearer, will certainly concentrate Government Members’ minds not only on small U-turns but perhaps on more major ones.
The Institute for Fiscal Studies undertook an analysis of the Government’s public expenditure changes which showed that the part of the education system that will be most handicapped and suffer the largest cuts by 2015 will be colleges of further education. Indeed, they will experience a 20% real-terms cut in their budgets by 2015. I know that it would not be in order to ask the Minister to respond to that, but given that the Government’s policies are making the playing field even more unequal for sixth-form colleges, compared with the treatment of sixth forms in schools, let me make a plea for him to concede that point and exempt sixth-form colleges, whose students are of an age that if they were not at college, they would be in school.
Bob Stewart (Beckenham) (Con)
I do not understand why this has ever occurred. How come a sixth-form college is not treated exactly the same as a sixth form in a normal school? They may be in different areas, but they are essentially the same kids. I do not understand it, so perhaps the right hon. Gentleman—my friend, because I have known him a very long time—can tell me the answer.
Andrew Percy
It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field), who made an interesting contribution, on an issue that I was not planning to speak about, but which I hope will be pursued if his new clause is not accepted this evening.
This has been an interesting debate. I am only sorry that the Minister’s attempt to take us through every VAT change since 1973 was cut somewhat short. We got to about 1983, which was probably as far as most of us needed to get, but it was interesting none the less. The debate has also been interesting because of the number of food products that have been mentioned. At one point, when we were talking about rotisserie chickens, pasties and sausage rolls, I thought it was lunchtime at the Percy house, but apparently not. I am proud to say that I eat pasties: I ate my last one from Fuller’s bakery on the precinct in Goole just the other day. I cannot say that I partake of sports drinks, so I will not take much of an interest in that part of the debate, but I am certainly pleased that the Government have seen sense on pasties. I am not sure that I necessarily share the full analysis offered by my hon. Friend the Member for Truro and Falmouth (Sarah Newton) about the seamless transition of policy. I do not think it has necessarily been the Government’s finest hour, but at least at the end of the process we have a system with which we can all live.
I want to make a few brief comments about the caravan tax. It is a pleasure to see my hon. Friend the Member for Beverley and Holderness (Mr Stuart), who assisted with—[Interruption]—sorry, who led the campaign. I chide him with an in-joke. He led the campaign very ably and got us all together. He deserves credit for that, and I am pleased to see him here for this debate. The impact that the measure would have had is well documented in the various debates we have had. The Minister knows from the meetings we had with him that we were very concerned, particularly in our part of the world, where the vast majority of the relevant manufacturing is and where a lot of the supply chain is based, including, in my constituency in Brigg, a number of companies that were affected. I also have some of the parks that would have been affected in my constituency. I am pleased to see my hon. Friend the Member for Cleethorpes (Martin Vickers), who would have similarly been greatly affected, from the point of view of the park owners, had the measure gone forward. It is therefore incredibly important that we have reached the position we have.
Some genuine points have been made about the consultation. One needs only to do a Google search to find headline after headline, in both local and national papers, about the state in which the industry has found itself in recent years. Indeed, it had to go to the previous Government looking for support, although I am not sure that a great deal was forthcoming. We are talking about an industry that has struggled considerably over the past few years, so quite who came up with the idea of slapping on 20% VAT, thereby affecting sales by up to 30%, I do not know, and I hope that some lessons will be learned. I prefer to see what the Government have done not as a U-turn, however. There was a US politician who used to describe a U-turn as a recalibration of policy, so I welcome this recalibration of policy. It is a shame that the previous Government did not do that on more occasions, as my hon. Friend the Member for Beverley and Holderness mentioned.
Mr Stuart
I am grateful to my hon. Friend. Now that a 5% VAT rate has been introduced, does he agree that any Government, whether the coalition or a future Labour Government, would be ill-advised to return to this issue with any form of increase? The level of 5% can be accepted. People do not pay council tax on these caravans. We are talking about a compromise, but one that can last, that the industry can live with and that the political establishment should live with. Indeed, no Government should ever think of returning to the issue at any time while even someone as young as my hon. Friend is in this House.
Andrew Percy
I am being abolished at the next election anyway, so there are only three years in which the Government might have to worry about me. However, they would frankly be stupid—if that is not unparliamentary language—to look at the issue again. I think any Government will take note of the campaign.
The final assurance I seek from the Minister is that we will continue to be conscious that there will still be a potential impact, as was mentioned in interventions by the hon. Member for Kingston upon Hull North (Diana Johnson), who also fought valiantly. I hope that the Treasury will continue to monitor that.
In the final minute, I want quickly to say something about the Opposition’s VAT cut for millionaires, which I think is what they are proposing. Whereas we on this side of the House have decided to target tax changes at those struggling the most—for example, by raising the personal allowance and taking some of the poorest out of tax altogether—the Opposition policy is to issue a massive VAT cut for high earners and millionaires, and just to pepper money around. The Opposition are not quite sure how much—they have not told us, although we think the figure might be £12 billion—and they do not know for how long the measure would be in place. What a policy! The interesting thing we have learnt is that we now know that the Opposition’s official policy is to support, ultimately, VAT at 20%, because they have said that the measure would be temporary, meaning that they have therefore definitely agreed the 20% rate.
Andrew Percy
No, I am not going to give way, because other people want to speak.
The shadow Minister talked a lot about VAT consultation and the Government’s failure, she said, to consult on the changes. I just wonder whether she has consulted very widely on her proposal to reduce the rate temporarily to 17.5%, because I suspect not.
Diana Johnson
It is a real pleasure to follow the hon. Member for Brigg and Goole (Andrew Percy), who, with characteristic humility, accepted that bringing forward these VAT proposals was not the Government’s finest hour, unlike the hon. Member for Truro and Falmouth (Sarah Newton), who unfortunately is no longer in her place. She has a rose-tinted view of the shambles of this Budget and the proposals that have been put forward, which caused consternation, upset and distress to many individuals and businesses around the country. However, she now seems to think that we should be celebrating the fact that the Government have had to cobble together this compromise.
I shall be supporting new clause 10, which was tabled by those on our Front Bench, and I want to speak against the Government’s new schedule 1. Our opposition to new schedule 1 underlines Labour’s commitment to having low taxes, because it would implement a tax increase, including the 5% VAT on caravans, which I want to address.
Diana Johnson
This section of the debate is about VAT. When we are in a double-dip recession, the imposition of VAT on items such as caravans is not going to help us to grow out of that economic position. That is what I will concentrate on.
The proposal for 20% VAT to be levied on static caravans came out of the blue in the Budget. There had been no consultation with the industry, and no warning that the Government were planning that measure. The impact assessment published alongside the Budget stated that the 20% VAT would result in a 30% reduction in the market for static caravans. The Government’s U-turn involved a 75% reduction in the amount of VAT involved, and 5% will now be levied from April 2103, as opposed to 20% from October 2012.
I can go some way towards welcoming the fact that the Government have listened and put forward a response to the widespread view that the imposition of 20% VAT would have been a disaster. There was cross-party work on the issue, with a number of debates, early-day motions and petitions. I will give the Minister his due; he did take the time to listen to what people had to say, especially those from my part of the world. However, serious concerns remain about the effect that the 5% VAT will have, and I want to run through them tonight.
I want to talk first about jobs and demand, which are at the heart of the issue. As I said, the Treasury’s own figures showed that the imposition of 20% VAT would have resulted in a 30% reduction in demand for static caravans. It worries me that the Treasury seems incapable of using figures appropriately. When I looked at the impact assessment, I realised that it had got the figures for businesses and manufacturers in the caravan industry wrong. It worries me that it cannot even get such basic information correct when it sets out to consult on a proposal. I want to see much better research into the impact of the 5% VAT on caravan manufacturers.
I have not been reassured by what the Minister has told me today, even though I have pressed him to tell me what will happen to manufacturers in the caravan industry. I did not feel that he really had a grasp of what the numbers might be. It worries me that there has been no proper assessment of this policy. Does he think that levying 5% VAT will put at risk roughly a quarter of the demand that the 20% VAT would have put at risk? Does he also think that the number of job losses in the caravan manufacturing industry will be reduced from the 6,000 mentioned in KPMG’s report to about 1,500 as a result of the change in VAT? Will he also comment on the knock-on effects for the wider UK tourism and domestic holiday industry?
I want to draw the Minister’s attention to the HMRC document, “VAT: Taxing Holiday Caravans”, which was published at the end of last week. On the economic impact of the 5%, it states:
“This measure is likely to lead to an increase in the price of static and larger touring caravans which could lead to a fall in demand.”
I take the view that the Treasury civil servants are among the brightest and best that the civil service has to offer, and it seems odd that they have been able to come up with nothing more definitive than that the measure “could” lead to a fall in demand. The document goes on to state:
“Although the overall impact on the macro economy is expected to be negligible, the measure will impact local manufacturing in Yorkshire and the Humber where the bulk of static holiday caravans are manufactured.”
Most people in Hull and East Yorkshire would agree with that, but surely the Treasury can come up with something better. The section of the document entitled “Impact on businesses including civil society organisations” states:
“The vast majority of static holiday caravans are manufactured in Yorkshire and the Humber and a small number of manufacturers account for the vast majority of all UK sales. Although some manufacturers produce other types of caravans, static caravans are the main source of income for most of these manufacturers.”
Again, it worries me that the document uses such general terms. Where is the meat in all this? Where are the figures? Where does it tell us what the actual economic impact of the policy will be?
Let us bear in mind that we are in a double-dip recession and we are all desperate to get growth back into the economy. I mentioned in an intervention that 46.3 people in my constituency chase every job vacancy going, so any loss of jobs in the caravan manufacturing industry is a disaster for my constituents. I think that the hon. Member for Brigg and Goole mentioned that the caravan industry suffered very badly in 2008-09, and it is only just getting back on its feet. If the Treasury thinks that the imposition of 5% VAT will be fine for an industry that is struggling in a double-dip recession when people are not spending, it really needs to look again at its figures and ensure that they all add up.
The Minister said that the goods within a caravan were already taxed, in that VAT had already been levied on such items. My understanding is that the figure involved is about 5%. Will he tell us whether the 5% proposed in the Bill will be an additional 5%, making a total of about 10% VAT payable? I am confused by that, and the Minister has not made it clear.
One of the strongest arguments against the initial proposal for 20% VAT was that it would raise very little revenue for the Treasury. When taking that into account, we also need to consider the welfare costs that would be incurred from people in the industry losing their jobs. Has the Minister looked at the figures involved? Does he think that the sums add up?
HMRC now estimates that the 5% VAT will first raise revenue in 2013-14, when it will bring in £5 million a year, rising to £10 million a year from 2013-14. That is a relatively small amount of money, given the Government’s overall spending, especially in the light of the millions that they have found in the Budget for tax cuts for millionaires. Let us put this into perspective: £10 million is perhaps a third or half of what Mr Diamond’s severance payment might be.
This measure will have an impact from next year onwards, while raising £5 million to £10 million. When we take into account the fall in demand in the industry and the resulting job losses, I do not think that the Treasury will end up in credit. Introducing the measure could result in more money being spent, through welfare benefits. Will the Minister set out for me the sums that he is using to ensure that the measure will bring a net benefit to the Treasury? In my view, this is an ill thought-through policy, and these are crazy economics.
The Minister referred to the manufacturing standard, BS 3632. As I said in my intervention, using a manufacturing standard to dictate tax policy is silly.
Mr Graham Stuart
I want to return to the hon. Lady’s point about the overall costs. A significant percentage of the cost of a new caravan is found in the chattels inside, which already have VAT on them. So the additional overall cost will not be higher than 5%; it will be more like 3% or 4% on the overall average retail cost of a caravan. The manufacturers are telling me that they think that that can broadly be absorbed within their business model. It will have some negative impact, but a fairly minimal one. We are certainly not talking about 10% costs, but about rather less than 5%.
Diana Johnson
I am grateful for that intervention, and I pay tribute to the hon. Gentleman for the work he did on this matter. However, I would really like to hear from the Minister what the VAT level is going to be, because my understanding is that it is 5% plus the additional VAT already levied. The hon. Gentleman says that it is 3% or 4% and not 5%, but is that 3% or 4% on top of the 5%, which would mean it was 8% or 9%, not 5%?
Mr Stuart
Basically, VAT has already been paid on those chattels, so if 25% of the cost of the caravan were for the chattels, that already includes VAT, so we are looking at 5% on 75% of the overall cost of the caravan. That is why it is significantly less than 5% as an addition to the actual cost when someone goes to a park to try to buy a caravan. The additional costs as a result of this change will be significantly less than 5%—I say that clearly and categorically.
Diana Johnson
I am grateful to the hon. Gentleman again, but I would still like to hear from the Minister exactly what the figure will be. My understanding—I was at the same meeting with the caravan manufacturers in Beverley as the hon. Member for Beverley and Holderness (Mr Stuart)—was that a figure was levied across the whole price of the caravan, including the chattels in the caravan at around 3% or 4% of the overall cost. Will the Minister clarify that? Are there two figures that we need to be aware of, or is it just 5% overall of the total amount of the purchase? I have to tell the Government that if this were intended to make things clearer, the truth is that it is making things even more complicated and less transparent.
Let me return to the BS 3632 specification. I was saying that I thought that that was not a sensible way to make tax policy. I know that the distinction between static caravans and those used for residential purposes 365 days of the year is based on the reference to BS 3632. If we look at the responses to HMRC’s consultation, we see that while many respondents felt it would be relatively straightforward to upgrade static caravans to meet the BS 3632 standard so that they could benefit from zero-rated standing, many others said that the costs of doing so would be prohibitive. There is a confusion there, which is why I would like the Minister to be very clear about it.
With certified British standards changing all the time because manufacturing gets better and better, how often does the Minister think he would need to return to this tax provision to update it? I doubt whether it will be set in stone for years to come; it will have to be looked at and changed in the future. I heard the Minister’s reassurance that we would not see changes to the standard in the future, but he is opening the door to potential changes. The system that the Minister has devised, based on the British standard and keeping the distinction between static, residential and touring caravans, does not make things clearer and more transparent; rather, I think it extends the anomalies in the tax system.
An even bigger issue for me is the lack of clear evidence of what the change to VAT policy will do for my constituents and for jobs in my city. That is what really concerns and worries me. I know that the Minister has listened carefully to my pleas about employment and jobs. I hope he will think again and will instruct his officials to do a proper piece of work, so that when MPs scrutinise Government policy, they will have accurate figures to look at in order to assess whether the Government’s policies will result in what they say they are trying to achieve. In this case, I do not think the Government will see additional revenue in the Exchequer. If they bring forward this ill thought-through proposal, which will disproportionately affect my constituents, there will be a loss to the Government.
Stephen Gilbert
I feel as if I have fallen into a parallel universe in this debate. It is interesting, is it not, that although Labour crashed the economy so totally, Labour Members today want to provide a £12 billion giveaway by reducing VAT—something that would presumably have to be paid for by further cuts in the public services that they say they want to protect, or indeed by an increase in borrowing. It seems inconceivable to me that this measure is on the amendment paper in the name of Labour Members. I recall that when I was growing up there was television programme called “Jamie and the Magic Torch”. I used to enjoy it considerably, but it seems that we have a show on the other side of the Chamber tonight called “Ed and the Magic Money Tree”, with the Opposition unable to be clear or consistent about their VAT policy.
Another bizarre aspect of the debate is that when the Government are forced into what my hon. Friend the Member for Brigg and Goole (Andrew Percy) refers to as a “recalibration” on a number of issues, which my constituents certainly welcome, the Opposition oppose the measures that the Government are taking to address the problems that they initially highlighted. It strikes me as utterly bizarre that, a few months ago, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell)and her hon. Friends raised concerns, as did I and other hon. Members, about the pasty tax, the caravan tax, the problems affecting static caravans and other issues, yet tonight the same hon. Lady and her colleagues are going to vote against the U-turn that the Government have made. It may well be the case that the Government have made a U-turn, but it is clear from the positioning going on tonight that Labour has taken a wrong turn.
Labour Members cannot have it both ways. They cannot criticise a Government for being cavalier when they do not listen, and then criticise them as chaotic when they do listen. As they well know, the reality is that on all these issues, particularly on tackling anomalies in the VAT system, the problems were set out in the consultation that my right hon. Friend the Chancellor rightly announced. That consultation was widely subscribed to by many interested parties, and the Government took the responses to it into account and changed their view on the back of the evidence they received. I for one recognise that none of us has a monopoly of wisdom. It is surely in the finest traditions of good government that the people likely to be affected by these rules are listened to and that a Government take advice if a deleterious effect is pointed out.
Labour Members talk about the need to consult, but when they abolished the 10p tax rate, plunging millions of the lowest paid into further tax, I do not think they consulted on that measure. That is why, as I say, the last few moments of the debate have been somewhat eye-opening, highlighting the sheer opportunism of the Opposition in opposing a U-turn. They call for consultation, then, in the very debate that shows that the Government are listening, they choose to ignore it. Frankly, as I said at the outset, that is bizarre.
My constituents would want me to welcome new schedule 1 and Government amendment 17. Those provisions will protect jobs in Cornwall, protect the Cornish high street and high streets across the country, protect the secondary spend in the wider economy and will ensure that Cornwall, which is already a disadvantaged part of the our United Kingdom, is not further disadvantaged by proposals that the Government have, thankfully, amended.
I would also like to thank the Minister. In all the discussions between him, me and my hon. Friends, he has always been entirely professional, courteous and constructive in his engagement. I would like to thank others, too. As the hon. Member for Newcastle upon Tyne North knows, Greggs is based in her constituency. Its effort to mobilise more than 500,000 signatures across the country for a petition that my hon. Friends in Cornwall and I were able to deliver to Downing street showed the level of grass-roots concern about proposals that could have been very damaging.
I thank the National Association of Master Bakers; that is not a sentence that one wants to rush through! Its engagement with this issue has been constructive and professional, and it has represented the views of its industry to the Government very effectively. For what will probably be the only time in my life, I also thank and pay tribute to The Sun, which ensured that the issue touched the popular zeitgeist and was able, ultimately, to deliver change. More locally, the Western Morning News, the voice of the south-west, played a useful role in keeping the issue in the public eye.
I can tell the Minister that people in Cornwall are relieved that this coalition Government took soundings, listened and, at the end of the day, delivered a result that will protect an iconic and important Cornish industry. It is estimated that the measure will safeguard about 13,000 jobs in Cornwall, put hundreds of millions of pounds into the local economy, and guarantee the production of the 180 million Cornish pasties that are made in the county every year.
Bob Stewart
Everyone has been saying how great it is that VAT will no longer be charged on pasties, but I should point out those who own fish and chip shops are at a slight disadvantage by comparison. I just want to balance the equation a bit, and that is one of the things that we were trying to put right.
Stephen Gilbert
I entirely agree with my hon. Friend. He will be pleased to know that new schedule 1 will deliver the level playing field to which he and my right hon. Friend the Prime Minister have referred, and on the subject of which I have received representations from fish and chip shops in my constituency.
If a product in a fish and chip shop is being kept artificially warm it is standard-rated, and new schedule 1 will ensure that the same applies in a pasty or pie shop. The simplicity for which the Government aimed has been delivered, as has the level playing field for suppliers of hot food. I hope that my hon. Friend will convey to the fish and chip shop proprietors in his constituency with some enthusiasm the message that, as a result of the constructive process of consultation and engagement undertaken by the Government, the special status of baked goods which are hot only as a product of their baking process has been recognised. The fact that a freshly baked hot pasty which is simply cooling down will remain VAT-free should be welcomed by one and all.
Sheila Gilmore
The hon. Member for St Austell and Newquay (Stephen Gilbert) seemed to think that he was living in a parallel universe, and, indeed, most of we Opposition Members thought that we were living in one as well. The process that has taken place is rather like the process that takes place when someone says “I want £10 from you”, and then, after a great deal of argument, says “I will make it just £2, so you should be happy”, and we find ourselves saying “Thank you so much for listening.”
Yes, it was good that the Government listened. I do not think that any Opposition Member has said otherwise, although we might have preferred them to listen from the outset. They had an opportunity to do so on Second Reading. One or two Conservative and Liberal Democrat Back Benchers voted against the Government even then in order to make their views known, but many others who had heard the Government say that the measures were necessary voted for them. Yes, it is good that the Government have listened, but it might have been better had they never embarked on this road. We must ask whether it was sensible for the Treasury—which, one assumes, is in charge of our economy to some extent—to spend the last four months dealing with matters which it had, after all, generated in the first place.
Roberta Blackman-Woods (City of Durham) (Lab)
Does my hon. Friend agree that the Government listened only partially, especially when it came to the imposition of VAT on listed buildings? Churches will still have to undergo a bureaucratic process in order to claim it back, and other listed buildings will still be subject to VAT for repairs. That could really affect the country’s heritage.
Sheila Gilmore
I shall say something about precisely that issue later.
The time and effort of officials and politicians was largely wasted by a process that, in some but not all instances, led us back to where we started at a time when the economy was tanking. Could not much of that energy have been expended on something far more worth while? It was said on Second Reading that this was not a Budget for jobs and growth but a Budget that tinkered at the edges of various issues, and the Government have themselves conceded that all that tinkering was probably a bad idea.
Diana Johnson
Does my hon. Friend agree that the VAT measures in the Budget had a major effect on business confidence in certain industries? For instance, when the caravan industry was threatened with the imposition of a 20% rate, some companies issued their work forces with 90-day potential redundancy notices.
Sheila Gilmore
Of course the stress and anxiety affected confidence and well-being. Indeed, it may have led to a further plunge in demand as people anticipated the impending redundancy which, thankfully, did not come about in many cases. That is an important consideration at a time when the economy is struggling so much.
I think that a great deal of time was wasted because the Government included measures in the Budget rather than dealing with the position earlier. If they believed that there were anomalies in the VAT system, why did they not consult? As I have suggested before, they could have said “We are minded to look at these things” at the time of the autumn statement, rather than at a time when they were putting together a Budget that, apparently, they wanted to balance. We heard a lot about that at the time.
Why did the Government not say “We want to look at these anomalies and review them in a general context”? One of our amendments proposes that that should happen in future. If there is to be consultation, it should be proper consultation. Saying, as the Chancellor did in March, “This is what we have to do and this is why we have to do it, but we will have a bit of consultation afterwards” is putting the cart before the horse. I hope that that lesson will be learned for the future.
Julie Hilling
One theory being put about is that the Chancellor was hijacked by civil servants whose pet projects had been turned down by the Labour Government, who had said “Don’t be silly”, and the Treasury was suckered into proposing a load of nonsensical changes.
Sheila Gilmore
That may indeed may be the case. I recall that in 2007 a new council took charge in Edinburgh—it was a Liberal Democrat-SNP coalition—and it announced that it was planning to close some 22 schools. There was a very interesting cartoon in the local paper. It showed officials coming out of a meeting with the new administration and turning to each other and saying, “We never expected them to accept all that. That was a starter for 10, and we thought we’d get beaten back.” The officials had put forward this proposal and the new and inexperienced administration had said, “Yeah, we’ll go for that.” It did them some reputational damage. They proposed closing 22 schools, but then had to roll back very substantially because of the public outcry. The officials had expected to be told, “Actually, that’s not what we want to do. That’s not sensible. Let’s see the proper workings before we ever go public on this.” Perhaps the suggestion that this Budget measure was a consequence of our having a very inexperienced Government and Chancellor was right, therefore.
Roberta Blackman-Woods
Does my hon. Friend not agree that that view is much too kind to the Chancellor and the Government parties, as they clearly dreamt up these mad ideas themselves?
Sheila Gilmore
I will resist the temptation to take up my hon. Friend’s invitation to agree with that view, because we have to be tolerant, to a degree, of inexperience. There is currently a strong cult of youth and inexperience in our politics, but that might change, and it might at some point in the future be acknowledged that there is merit in looking to those who have had experience of life and living before entering politics, rather than to those who become as exalted as the Chancellor of the Exchequer before they have lived and experienced a great deal of ordinary life.
I shall spare Members having to listen to me list all the listed buildings in my constituency that are not churches. Those who want to know what those buildings are can read the relevant Committee report in Hansard. There is an important point, however. It has been assumed that because the Government made a concession—albeit not a full one, perhaps—to churches, the problem has been solved. There are other listed buildings that are not churches, however, which will now face the 20% rate with no financial assistance or concession made to them. These buildings are equally important. Churches are extremely important as historical monuments, even if some of them are no longer used as churches. In Edinburgh, there are examples of churches that have been converted to other uses, but there are other buildings that are at risk, too, and imaginative alterations might be made to some of them in order to put them into community use. This extra cost will put some such community projects at risk, however, and will put some buildings at risk, too. If those buildings cannot be put into community use, it is likely that they will deteriorate and end up having to be demolished on safety grounds.
Roberta Blackman-Woods
Does my hon. Friend agree that it is thoroughly irresponsible to bring in the increase on repairs on listed buildings without conducting a proper impact assessment, and that the Government should review this policy?
Sheila Gilmore
I agree. The Government have pointed out that VAT falls on repairs but it did not previously fall on alterations, and they say we should equalise the situation. That misses the point. Alterations often enable buildings to have a different use from their previous one. They are made to be able to function again for business, residential or community-use purposes. Such alterations are generally bigger projects than simply repairing the roof and ensuring that the rain does not come in. The costs involved can be great, and this 20% addition to the cost will therefore be very considerable and will put many such projects at risk. Many people have made that point, and do not feel the Government concession in respect of churches goes nearly far enough. We must bear that in mind. We will find out in the future whether these concerns were right.
In respect of VAT at least, this Budget has been shambolic. It is not good enough for people to say, “Well, because there has been a change, the whole process is now a good one.” It has not been a good one reputationally for the Government—and perhaps we, as Opposition Members, should be pleased about that. We cannot be pleased, however, when we see the effects that a declining economy has on so many of our constituents, who feel they are faced with a Government who truly are not caring.
Let us think about the arguments made in defence of some of these changes. On listed buildings, we have heard all sorts of arguments, such as, “The previous situation allowed rich people to build swimming pools.” There was no particular evidence of that, but the Chancellor obviously thought it was a good argument to put up because he liked the idea of presenting himself as being on the side of the small person rather than the rich—despite the overall effect of his Budget policies.
Roberta Blackman-Woods
Does my hon. Friend agree that if the Government were indeed concerned that alterations were going to be made to create swimming pools, the measure could simply have exempted such alterations?
Sheila Gilmore
That is indeed the case. Conducting research and finding good evidence before making and changing policy is of paramount importance. We have seen that in respect of many aspects of this Budget. We saw it in the debate yesterday in respect of the 50p tax rate. There were a lot of hypotheticals—a lot of “maybes” and “perhapses”—but there was not a lot of solid evidence.
This has been a poor piece of policy making. I congratulate the Government on turning, but if they had thought things through first, they would never have had to turn.
Nigel Mills
It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.
Charlie Elphicke (Dover) (Con)
Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?
Nigel Mills
My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
Diana Johnson
Does the hon. Gentleman feel that better decision making might come through consulting before putting a proposal to Parliament, and getting all the ducks lined up before coming before the House?
Nigel Mills
I agree with the hon. Lady, and I said yesterday that it would be better to consult before trying to legislate, but we did have a detailed consultation document that looked at this idea. I do not think that the legislation to implement this proposal was in the original draft of the Finance Bill, but it would have been brought forward by a statutory instrument later on; although it was announced as an idea, it was not in a legislative form at that point, so strictly speaking the Government have done what she calls for.
I wish to make one comment on the pasty tax, as an aside. It is clear that when making tax policy we have to avoid things that have a handy popular nickname. We have had big campaigns on the “pasty tax” and the “caravan tax”. It has been a bit harder to get the public behind a “sports drinks nutritional drink tax.” If it had been called a “Lucozade tax”, there might have been more publicity. The Government should be careful in making future tax policy to look out for what nicknames might be used. However, those who favour tax being understandable may feel that all taxes should have a simple nickname so that the public understand what they are for.
On the new “pasty tax” definitions, I am concerned that we might end up with some things that are unclear, such as the definitions of what is being “marketed” as “hot” and of what wrapping is allowed. We are told, “Don’t worry, it will be clear in HMRC guidance what is allowed.” However, we should be trying to legislate clearly: Parliament should be clear in what it says. I hope the Minister can put it on the record that bakeries on the high street that are trying to sell freshly baked products will not find those things subject to VAT unless they are kept hot or are wrapped in a heat-retaining bag, and that using ordinary, simple packaging or marketing those products as “freshly baked” will not be caught. That is absolutely the intention that Parliament has, and we should make it clear.
On sports drinks, I am concerned about going down the road of having a principle of deciding a tax treatment on the basis of how something is advertised or marketed, rather than on the fundamental underlying nature of the product. We can see that strange ways of how someone chooses to market something might change the tax treatment. I think I understand the aim of this proposal, which is to provide for high-sugar drinks sold as sports drinks when they are not much different from Coca-Cola or other fizzy products that we are trying to equalise the VAT treatment on. The wording in new schedule 1 leaves where the line is open to question.
We exchanged comments earlier about whether milk could strictly drift into being covered by the wording if it was marketed as something that aids physical performance and whether we risk a court, at some point, taking an utterly perverse and stupid view that milk is caught by the provision, given that we clearly do not intend it to be. We need to be careful what we mean. That line will be tested and people will ask, “What is a sports drink that is largely based on milk or some milk-derived product, and what is an ordinary pint of milk?” Where will we draw the line about what is VAT-able? A Mars drink is advertised with the slogan, “Unlike other sports drinks, this milk product actually tastes nice.” It is hard to understand why a Mars milk-flavoured drink is not going to attract VAT but a sports drink will. We need to be careful to avoid people not knowing what we actually mean.
If I market a whey-based product that is made up into a drink as a sports product, VAT will apply, but if I market it as a diet product or a nutritional supplement, perhaps for the elderly who are struggling to get enough calories in their diet, that will presumably not be VAT-able. All I have to do if I want to buy the thing to use it for sports purposes is choose the one marketed for an old person’s supplement, and although I would be able to use it in exactly the same way as the sports drink on the next shelf, I would be buying it for 20% less. I am not entirely sure that that is what we intend. Although I understand what is going on, we have to be careful if we start defining tax policy based on how something is sold and not on the underlying product.
With those few remarks, may I finally commend the Government on the position they have got these things into? It is vastly better than where we started, and I will certainly vote for new schedule 1.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. May I inform hon. Members that I want to bring the Minister in at twenty-past?
Julie Hilling
I took my car for a service last week at my local garage, which is a one-man band. He said, “For heaven’s sake, will you get rid of that lot? They are ruining my business.” When I asked him what he meant and what the Government were doing that was ruining his business, his reply was, “VAT—the 20% rate is destroying my business, and all the other small business owners I know think exactly the same.” Sadly, a reduction in VAT from 20% is not an option in this debate, but putting VAT on to so many other things just increases the problem for hard-pressed businesses and struggling people.
Bob Stewart
The hon. Lady tells us that she went to her garage and the man said, “Get rid of that lot”, but what would her lot do instead to give him much more business? That is what I would be delighted to hear, and I hope that she can give me an answer.
Julie Hilling
What Labour would have had is jobs and growth. We would not have been in a double-dip recession and we would not be in this stupid position of cutting too fast and too deep, which is ruining the British economy. Unfortunately, we are not in government.
It has been incredibly difficult to prepare this speech, because it is hard to work out, in this omnishambles of a Budget, what this disorganised Government have done a U-turn on. Perhaps I should not call them U-turns, because in many cases the Government have done them only partially; I am not sure whether these are L-turns or C-turns. I thought that they had done a full U-turn on the caravan tax, but I discovered this afternoon that they have not done a full U-turn at all, and the pasty tax is as clear as mud. I was having a discussion with colleagues before this debate as to what food is now VAT-able and what is not. It seems that a rotisserie chicken that will be cold when someone eats it is VAT-able, whereas a pasty that comes out of the oven will not be, unless it is put on a hot plate. But what happens if the oven is put on low so that the pasty is just kept warm? Will that pasty be VAT-able or not? The Minister needs to explain to me and the nation how this proposal is different from his first proposal, and how it is to be policed. Will taxmen regularly visit all the sandwich shops in the country to check on their ovens? That needs further explanation.
What about the mess of heritage tax? Again, we saw panic among Government Members and a little U-turn, perhaps to silence the bishops and return some money to places of worship for their alterations. However, £30 million will not go far, and the tax has been a huge blow to many communities.
Jim Shannon
Some 30,000 listed building consents were given last year, with some £120 million being spent on alterations. Does the hon. Lady feel that that £30 million will be adequate compensation ?
Julie Hilling
I thank the hon. Gentleman for that intervention. Clearly, I do not believe that £30 million is anywhere near the sum needed to compensate. Of course, the Government have also said that those people will get lottery and Government grants, but hang on a minute: is that not just taking with one hand and paying back with another? The change has been a huge blow to many communities that have been working for years and years to raise enough money to rescue old buildings and convert them for use by the whole community, only to now have to find another 20%.
The Government have tried to say that we should not worry too much about the heritage tax as it is really about charging millionaires who live in listed buildings and who get their indoor swimming pool tax-free, but there is no evidence for that. They conclude on the basis of a review of 105 applications that the majority of the work covered by the relief is
“not necessary for heritage purposes”,
but as nearly 30,000 listed building applications are made a year, that does not seem to me to be good evidence. From a sample of 12,049 applications, only 34 were for swimming pools. Perhaps we could deal with the problem in a slightly different way rather than imposing the heritage tax on all buildings. Indeed, 50% of those who live in listed buildings are in socio-economic groups C1, C2, D and E—supervisory, clerical, junior management, administrative, skilled workers, semi-skilled workers and unskilled workers. People in those groups are not usually millionaires.
That implementation of VAT will not raise a great deal of money in the scheme of things, but will be another blow to the construction industry and run the risk of more of our heritage buildings going to rack and ruin. Of course, once VAT is put on something it can never be returned to zero.
Skip taxes seem to have been introduced and then withdrawn. I think they probably have been withdrawn—who would know? The Government seem to be introducing a self-storage tax, however. Self-storage is often used by people in transition, such as those who are selling or buying houses or those whose homes are undergoing renovation. It is also used by people who have downgraded or moved to a different community and therefore have to live in much smaller accommodation. It is usually in a prime location so that customers can come and go as they choose, changing their winter wardrobe for their summer wardrobe or taking goods in or out of storage. Removals and storage providers have storage facilities as an ancillary part of the business and are therefore frequently in more remote places, as the location of the property does not need to attract customers. One reason for putting VAT on self-storage was to level the playing field for removal companies, even though they have different purposes. The effect will be that ordinary people will be hit again. Businesses that use self-storage to store documents and so on will be able to reclaim the VAT, but the ordinary person will not.
I think we still have a hairdressers tax. That will mean that self-employed hairdressers who rent a chair in a small salon will have no choice other than to register for VAT and decide whether to charge their customers VAT at 20% or to absorb the cost themselves. Of course, that will particularly hit females aged between 16 and 46—the very people whom the Government say they want to encourage to be entrepreneurs, start up their own businesses and pay into society.
The situation with sports nutrition is another unholy mess. If I have got this right—I hope that the Minister will correct me if I have not—sports drinks will become VAT-able, but sports nutrition products will not. If the Minister wants to intervene, I am happy for him to do so.
Julie Hilling
Does that mean that it will be exempt if a liquid product is made into a solid and people are just advised to drink water with it? What about weight-management products? More than 20% of the products in the sports nutrition category are for weight management. If they are slimming products, they are zero-rated, but they could also be considered to be sports nutrition products. We could have a bizarre situation in which men and women who exercise hard, follow a balanced diet and use sports nutrition products to help them get into shape would pay VAT, whereas those who skip meals, sit on the sofa and take magic slimming products would not.
It seems odd that we are making that tax change in Olympic year, when we are encouraging people to get fit, but it is typical of this Budget. It is a shambles that will create more anomalies than it will resolve. With all the U-turns—even though we welcome some of them—it is still totally confusing. Even after listening to the Minister this afternoon and spending many weeks on the Bill Committee, I am still not clear what the Budget says.
Secondly, the Budget rewards millionaires and punishes ordinary people. It punishes the squeezed middle and the battered base, which my hon. Friend the Member for Gateshead (Ian Mearns) frequently mentions. The VAT changes all hurt people who lead ordinary lives. They all hit hard-pressed businesses and do absolutely nothing for jobs and growth. The millionaires still get their tax cut, but they are not paying the tax that is due. If the rest of us decided not to pay our taxes, could we have a tax cut too? Or does that apply only to the very rich, who can also avoid their tax by paying accountants a great deal of money?
Charlie Elphicke
I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.
The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.
My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.
The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:
“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”
I want to plead for caution on the part of Ministers and ask them to consider carefully the question of tackling the underlying abuse, which is the business of disapplying the option to tax. I appreciate that many Members will find that exceptionally dull, as it involves highly technical VAT law, but my principal concern is that it is a hard thing to raise VAT across the board for 250,000 people when one really wants to target the few people who are playing the system to get more tax money for their businesses at the expense of everyone else and of the UK Treasury.
Mr Gauke
It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.
My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.
I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.
Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.
New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.
On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until
“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”
This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.
Catherine McKinnell
Is the Minister aware that the overall borrowing that the Government are engaged in is £9 billion higher now than was planned in October 2010, so the Government’s own economic strategy is resulting in higher, not lower, borrowing?
Mr Gauke
I am not sure whether the hon. Lady welcomes that. Does she support more borrowing or not? The Institute for Fiscal Studies has made its position clear on what would happen if we pursued the policies that the Opposition advocate or have advocated—that moves around a bit. It stretches the Opposition’s credibility if they think that their approach means that borrowing now would be lower. I think the sincere position of the Opposition is that we should have a bigger fiscal stimulus—we should be borrowing more now in order to pump money into the economy. Is that their position?
Catherine McKinnell
The Opposition’s point is that the Government’s own plans are resulting in more borrowing. The alternative is to give a 2.5% VAT cut to households to stimulate demand in the economy and get the economy out of the double-dip recession that it is in and back into growth, which will ultimately bring borrowing down.
Mr Gauke
So when borrowing is higher than we plan it to be, it is a disaster, but when borrowing is higher because the Opposition would bring that about through a deliberate policy, that would be a fiscal stimulus. I am not entirely clear where they are trying to go with this. We know why the public finances are more difficult than we had anticipated. It is to do with the eurozone, the increase in commodity prices and the fact that the economy took a bigger hit than anyone had previously realised, but a discretionary fiscal loosening of £12 billion or £13 billion, which is what the Opposition are about to vote on, would be taking a huge risk with our credibility.
It is worth making the point that if we do that, we lose our fiscal credibility and we are likely to see long-term interest rates rise. That will result in our paying out more in debt interest. A one-point rise in interest rates would mean £7.5 billion in additional debt interest payments by 2016-17, and an increase for the average mortgage borrower of £1,000 per year. Is that what the Opposition want? Do they think that would help?
Sheila Gilmore
The Minister should accept that he has given a partial quotation from his own Office for Budget Responsibility. He is fond of saying that the recession has been deeper than previously thought. Yes, the OBR did say that, but it also said at exactly the same time that the climb out of that recession had been faster than had previously been thought. That was a result of the economic stimulus measures that the previous Government put in place.
Mr Gauke
The OBR was very clear about the reasons why the economy did not grow as quickly as it had predicted. That was not because of the measures that we had taken to clamp down on borrowing. It was because of the factors that it set out. Now, at a time when we see other countries without fiscal credibility facing enormous difficulties, the Opposition want a discretional fiscal loosening of £12 billion or £13 billion a year. That is not responsible opposition. That is not a responsible policy and it is not a policy that this Government will pursue. I urge the Opposition not to press new clause 10.
I note that the Opposition are also opposing the VAT measures in total. That would be an additional cost of £210 million. These are measures that will remove anomalies. We have listened to the concerns raised by hon. Members and others to improve what we initially set out.
Catherine McKinnell
Can the Minister clarify how much the U-turns that the Government are legislating for today will cost and whether the £210 million has been factored into them?
Mr Gauke
After the changes we have announced, the Budget remains fiscally neutral. The reality is that the £70 million we are talking about has to be compared with the policy of cutting VAT, which would cost between £12 billion and £13 billion, and the £210 million for refusing to go ahead with the VAT changes we have announced. I am afraid that that simply underlines the fact that, once again, the Labour party has no fiscal credibility, will not face up to the challenges in the public finances and remains unfit for office.
“Caravans | Group 12” |
Catherine McKinnell
I beg to move, That the clause be read a Second time.
In this new clause we call on the Government to consider repeating the bank bonus tax, which raised £3.5 billion in 2010-11, and to use the revenue to create 100,000 jobs for young people. It is an understatement that this has not been a good few weeks for the banks. First, there were the disgraceful mistakes at Royal Bank of Scotland that left thousands of people unable to access their own money for up to a week. I am sure that top bankers there managed to get by for a few days, but for people on low incomes it is no laughing matter to be left without a week’s wages.
Gavin Williamson
Does the hon. Lady think that those who set up the regulatory system that governed the banks, such as the shadow Chancellor, should come to the House to apologise?
Catherine McKinnell
Then came the shocking revelations at Barclays—[Hon. Members: “Oh!”]—of traders fiddling the markets, cheating with mortgage and lending rates.
The Financial Secretary to the Treasury (Mr Mark Hoban)
Will the hon. Lady not have the courtesy to answer my hon. Friend’s question?
Catherine McKinnell
I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by the hon. Member for South Staffordshire (Gavin Williamson) does not address the severity of the matters that I am laying before the House.
Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—
Catherine McKinnell
It would be more appropriate for the hon. Gentleman to make his intervention now, but I will complete my sentence. Those traders then paid each other for the favours with bottles of Bollinger.
Gavin Williamson
The point that I was trying to ask the hon. Lady to explore was that the regulatory system put in place under the last Labour Government has led to market failure and the recent LIBOR problems. Does she not think that the shadow Chancellor should come to the House to explain why he took no action when he was City Minister? Yes or no?
Catherine McKinnell
I was talking about the situation at RBS, which was caused by a total administrative meltdown and computer failure; it had nothing to do with regulation. On the subject of regulation, Conservative Members called for less regulation. Politicians on both sides of the House need to consider where we go from here.
Mark Lazarowicz
Whatever people say about the banks’ responsibility for things that happened in the past, there can be no doubt that what has happened at RBS in the past few days is the responsibility of people running the bank now and of those responsible for the financial sector now, who include the Government.
It is not just those on low incomes who suffer from the damage caused by the difficulties at RBS, which obviously is trying its best to resolve them. Businesses in my constituency have contacted me saying that if the problem is not resolved immediately, they face closure. The Government need to take that issue seriously, but clearly they are not.
Catherine McKinnell
I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism involved in jumping up and raising a question about regulation, which is entirely irrelevant to the matter that I was discussing.
Charlie Elphicke
The issue had an enormous impact on the amount of taxes paid in this country. Why were interest rates being rigged by the previous Government, according to the memo?
Madam Deputy Speaker (Dawn Primarolo)
Order. The subject before us is what we will be debating, Mr Elphicke; we do not need to be sidetracked at this stage. I call Catherine McKinnell.
Catherine McKinnell
I am sure that my hon. Friend will raise a much more relevant matter in his intervention.
Grahame M. Morris
I am grateful for my hon. Friend’s patience and tolerance in the face of such provocation. Does she agree that part of the problem that we are trying to address through new clause 13 is the culture of excessive bonuses? Opposition Members recognise that that is part of the problem and we are trying to address it with the bank bonus tax.
Catherine McKinnell
I thank my hon. Friend. I have not made much progress yet, but the point that I was trying to make is that a whole series of actions by the banks have let ordinary people and businesses down. It is time that the banks played their part in putting some of that right.
Bill Esterson (Sefton Central) (Lab)
I apologise if I am preventing my hon. Friend from making progress. She need take no lessons from Conservative Members about regulation. They wanted less regulation, not more, and the point that they are trying to make now is disgraceful.
The issue is fairness. People are crying out for a repeat of the bank bonus tax in these tough times. Those with the broadest shoulders should make the biggest contribution in dealing with our problems. Many problems, particularly those faced by young people, could be resolved by the new clause.
Catherine McKinnell
My hon. Friend sums up in a nutshell why I am speaking in favour of the new clause.
The shocking revelations from Barclays this week are nothing short of a scandal. Barclays—along with we do not know how many other banks now under investigation —broke the rules to make a profit and put global economic stability at risk. It played fast and loose with rates that affect people’s mortgages and credit cards and, it would appear, gave little thought to how people could be affected.
In another shocking scandal, we found out that thousands of small businesses had been sold expensive insurance products that they did not need and could not use, spending money, which could have been used to protect jobs, to pay for products that never should have been offered to them in the first place. How many businesses have lost out as a result? All those actions on the part of the banks were totally unacceptable. The banks have been taking without giving back. The Government can take action now to put the situation right.
Gavin Williamson
I thank the hon. Lady for being so generous in giving way. I agree that the Government should take action to address some of the issues that have been raised. She mentioned a number of scandals. Will she name, for the record, the years when they occurred and which Government were in power when they occurred?
Catherine McKinnell
Members of the public will find this distasteful. We all share concern about the situation with the banks and the terrible events that have come to light in the past week or so. Government Members should be taking the lead on putting the situation right, but all they are interested in is scoring party political points. They need to be careful if they are not to lose all the public’s trust in their ability to start putting things right.
The Government can take action today. Stephen Hester, chief executive of RBS, has rightly said that he will decline his bonus this year in recognition of the serious damage that his bank has caused. Bob Diamond, chief executive of Barclays, resigned this morning over the currently developing scandal. It is right that those in charge take responsibility.
However, the banking industry as a whole is still benefiting from a tax cut this year—a tax cut, when their incompetence has cost thousands of people days of frustration, inconvenience and hardship. They have a tax cut when champagne swaps and dodgy dealing have been used to fiddle internal lending rates and when small businesses have been ripped off in yet another mis-selling scandal.
Our bank bonus tax would set that right, making the banks pay their fair share in tax instead of letting them get away with it. We want the money to be used to create 100,000 jobs for young people who are at risk of becoming the next victims of this double-dip recession made in Downing street. Labour’s bank payroll tax raised £3.5 billion in 2010-11 but this Government replaced it in 2011-12 with a levy raising just £1.8 million—barely more than half. Those are the Office for Budget Responsibility’s own figures, set out on page 101 of its economic and fiscal outlook paper in March this year.
The autumn statement in November last year had forecast a higher first take, but that turned out to be over-optimistic. That could be the case with future forecasts. The levy is supposed to raise £2.8 billion in 2014-15, but we cannot be sure of getting that. The OBR has had to keep revising all forecasts down and down, apart from those for Government borrowing, which keep going up and up. It is clearly inadequate to introduce a levy on banks with only half the yield of the previous tax. Along with the richest 1% of the country who have benefited from the scrapping of the 50p tax rate, this is one of the only parts of the Budget where the Government have given handouts. What does that tell us about their priorities? It tells us that they are not on the side of working people hit by the banks’ recent malpractice, but on the side of banks and millionaires. That shows just how out of touch this Government are.
We want to take tough measures to make the banks pay their way, and bringing back the bonus tax on top of the new levy is the fairest way to do that. It is clear where that extra money needs to go. We would use our double bank tax to plug the gaping hole in jobs and growth left by the Chancellor’s omnishambles of a Budget, which contained not one mention of the word “jobs”.
Bob Stewart
The hon. Lady envisages producing 100,000 jobs. What sort of jobs would they be, and how would they contribute to the economy?
Catherine McKinnell
It is nice to receive a considered intervention from a Conservative Member. The 100,000 jobs would be created through support from the future jobs fund. They would be guaranteed jobs paid at the national minimum wage for six months to give young people a real chance of getting on to the employment ladder.
This is about not only providing those jobs but creating economic growth and putting money into people’s pockets to create those opportunities. That aspect was absent from the Chancellor’s Budget speech, which is all the more shocking because of the seriousness of the problem. At Christmas, the number of young unemployed people reached 1 million for the first time since comparable records began, and long-term youth unemployment is rocketing too. Across the UK, the number of people aged 24 and under who are claiming out-of-work benefits for more than six months has increased by 60% since May 2010, while the number claiming for more than 12 months has more than doubled by over 125%. In this double-dip recession, young people cannot find work because between five and 10 people are chasing every vacancy. Depending on which part of the country they are in, it could be, and often is, a lot worse. The jobs are simply not there for young people to go into.
Yet the Government recklessly cancelled the very programme that was designed to create youth jobs. We want to use money raised from banks to put that right. In opposition, the Government supported Labour’s future jobs fund, which got young people into real, paid jobs. The Prime Minister called it “a good scheme”, and the Conservatives said that they had
“no plans to change existing Future Jobs Fund commitments”.
I apologise to the hon. Member for Beckenham (Bob Stewart) for my response to his intervention; in fact, it is through the real jobs guarantee that we would look to invest in new job opportunities for 100,000 young people. The future jobs fund was the successful scheme that the Prime Minister heralded as “a good scheme” but it was scrapped as soon as this Government took power.
I see that no Liberal Democrats are here for this debate. That is a crying shame and a shocking indictment of their commitment to young people and to making sure that bankers pay their way. The Liberal Democrats also pledged their support to the future jobs fund but swiftly supported the Government in scrapping it as soon as they got into power. In April 2010, in a letter to the Association of Chief Executives of Voluntary Organisations, their then work and pensions spokesperson —now the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb)—said:
“We have no plans to change or reduce existing government commitments to the Future Jobs Fund. We believe that more help is needed for young people, not less”.
The future jobs fund was scrapped just one month after that letter was sent.
Let us remind ourselves of what that scheme achieved. It offered every young person up to the age of 25 a job if they had been out of work for six months, with penalties for anyone who refused the opportunity. The jobs were real jobs, paid at the minimum wage, that lasted for six months—and that was guaranteed.
Alison McGovern (Wirral South) (Lab)
Has my hon. Friend read, as I have, the research from the DWP that tells of the impact on young people not only in terms of numbers but in terms of their confidence, dignity and self-worth?
Catherine McKinnell
I absolutely agree. It is not just about giving opportunities to young people where so few exist, but about this desperately concerning period in which we risk creating an entire lost generation, because young people are coming out of school, higher education and college and finding no opportunities at the other end. Once they fail to get on to the ladder of work and opportunities, the consequences can be long term and cause a lifetime of damage. The Government need to factor that in and grasp it now before it is too late to make sure that these opportunities are provided and that too many young people do not miss out. That is why it is so important that we use this opportunity to make sure that the bankers who caused much of the global economic and financial meltdown take responsibility for that and pay their way, giving young people real chances and opportunities.
Bill Esterson
My hon. Friend is making a powerful case for repeating the bank bonus tax. Does she agree that the Government should be considering the evidence from the 1980s about the effect that long spells of youth unemployment had on young people and how hard it was for many of them ever to find decent jobs and catch up? As a result of the Government’s delay and refusal to adopt this policy, they are in grave danger of repeating exactly the same mistakes, with all the misery that that will cause.
Catherine McKinnell
My hon. Friend makes a powerful intervention and reminds me particularly of my own region, the north-east, where too many people lost out on opportunities in the 1980s and never quite recovered from the experience. When I talk to young people today, I find that some of the brightest are coming out of school and choosing not to go to university or college but instead to try desperately to find whatever work opportunities might be available to them because, apart from the fact that they are put off by the tuition fees, they are so worried that if they did step on the ladder and go to university they would come out at the end to find there were still no opportunities. There is a deep sense of anxiety among young people that the Government need to be seriously aware of.
That is what is so concerning about the scrapping of the future jobs fund, which was not only providing real opportunities for young people and breaking the cycles of lack of opportunity, but helping businesses to open up and take on young people in particular. The Government replaced it with the work experience scheme, which they eventually rolled out last year and which offers only eight-week, unpaid placements. There is nothing to say that that is not valuable in itself, but it is simply not doing enough for enough young people. It is also available only for people under 21, so it does not cover unemployed people who have left further or higher education. Again, that compounds some of the anxieties that young people are expressing to me when they say that if they go on to college or university they will be no better offer at the end and they will instead be saddled with a lifetime of debt.
Mark Lazarowicz
It is worth remembering, is it not, that this younger age group, who will no longer be getting jobs under the future jobs fund, but only its successor, will also be one of the main targets of the Government’s cuts in welfare benefits?
Catherine McKinnell
Yes. I think that we all shuddered when we heard the proposals put forward by the Prime Minister which will mean that under 25-year-olds must either live at home or become homeless.
The youth contract, which was introduced only in April this year—too little, too late—offers very little extra, with no guarantee of a job, no guarantee of the minimum wage, but what the Government call “personalised support”, which we know from leaks could be little more than a weekly text message.
I am surprised that Government Members are not jumping up to proclaim the Government’s success with apprenticeships. Even with apprenticeships, it is difficult to believe the figures on the tin, particularly after McDonald’s recently revealed that it had spent £10 million of Government funding but had not created a single new job. The money was used to fund career progression for existing staff. That may be a worthy aim, but this is not the dawn of the apprenticeship revolution that the Government would have us believe.
Charlie Elphicke
Would the bank bonus tax proposed in the new clause be in addition to or replace the Government’s bank levy?
Catherine McKinnell
I am happy to confirm that it would be in addition to the levy. We raised £3.5 billion from the bank bonus tax in 2010-11 and would like the same amount to be raised again.
Catherine McKinnell
I am going by the OBR’s figures. I suggest that the Government do the same if they want to take advantage of this opportunity.
It is clear that we need action on jobs for young people. The bank bonus tax would bring in the money that is needed to create the real, paid jobs that will give under-25s the start that they need to get into the job market. That money could put £100,000 young people into jobs. Austerity on its own clearly cannot do that. The cuts are going too far and too fast, are choking off the recovery and are making it harder for people to get into work. We need an extra stimulus.
Rather than give the banks a tax cut this year, we want to make them pay their fair share of tax. We would use that money to give young people the start that the Government’s hotch-potch of schemes is failing to provide. That is what the new clause would achieve and I urge hon. Members to support it.
Charlie Elphicke
I am extremely grateful to have the opportunity to speak in this debate.
It is important to distinguish between the policies of the previous Government and those of the current Government. The bank bonus tax and the bank levy have a different ethos or philosophy. The original bonus tax—Members will correct me if I am wrong—was intended to be a one-off measure. In the March 2010 Budget, the Labour Government confirmed that the tax would not be extended, even though the gross yield proved to be higher than had been forecast.
Grahame M. Morris
Does the hon. Gentleman agree that part of the problem with the banking crisis is the excessive bonus culture? Perhaps shareholders and Governments should have dealt with that, but we will discuss that on Thursday. Is this proposal not an attempt to address that issue and to ensure that those with the broadest shoulders, who have done so well over the past 10 years with their huge bonus payments, make a contribution now that times are tough?
Charlie Elphicke
The hon. Gentleman makes an interesting point, but there are two problems with his argument. First, the tax would fall not on the greedy employees and bankers whom he wants to whip, but on the bank. Secondly, during his Government’s period of office—he will correct me if I am wrong—Fred Goodwin received some £15 million in bonuses, which he paid tax on at the old tax rate. The hon. Gentleman is therefore seeking to close the door after the horse has bolted.
Grahame M. Morris
The hon. Gentleman is being very generous and accommodating, as always. Does he know what the bonus figure has been for Bob Diamond over the past two years, while the hon. Gentleman’s Government have been in office?
Charlie Elphicke
For me, the issue is the size of the bonuses not in the private banks, but in the taxpayer-owned banks. That is the real concern that we ought to be focusing on. That is why the Government’s bank levy is the right way forward.
Charlie Elphicke
Let me develop my point and I will then take further interventions.
The Government’s bank levy is the right way forward because if we take too much money out of the banking system, we will be pulling out capital. If we pull out too much capital through taxation—or, indeed, through dividends—we will constrain the ability of the banks to lend. We have a crisis in which banks are not lending because they are hoarding capital. If we pull more capital out of the banking system, it will constrain the granting of mortgages and loans to small businesses. In my constituency, that is an important issue, because many small businesses are having great difficulty in getting the lending that they need.
Catherine McKinnell
I appreciate the argument that the hon. Gentleman is making, but is he not aware that long-term youth unemployment in his constituency has risen by 100% since this time last year? Does he not think that desperate action is required to bring that figure back down to zero?
Charlie Elphicke
I am all too aware that my constituency has had a difficult time and that youth unemployment has been rising. It rose significantly in the last Parliament under the previous Government, who completely mismanaged the economy. I welcome the fact that the jobseeker’s allowance count in my constituency has fallen in the latest figures. That is really positive. All of us are, of course, concerned about unemployment and want to see more jobs and money. That is why we need to get the banks lending again. That will help businesses to expand and to create the jobs, money and prosperity that we want to see.
Mark Lazarowicz
I am a little unclear about the logic of the hon. Gentleman’s position. He is against taking money out of the banks in the form of a bank bonus tax because it would affect the capital that they can lend to businesses. I think that is a fair assessment of his position. However, that criticism also applies to the bank levy that his Government are in favour of. How is it that he is in favour of a bank levy that takes capital out of banks, but against a bank bonus tax that is paid for by the people who get the bonuses?
Charlie Elphicke
My position is that the bank levy strikes the right balance. That is why I asked the shadow Minister whether her proposal would be in addition to, or an alternative to, the bank levy. That is significant. She is arguing, on the gross figures, for more than £3 billion more to be pulled out of the banking system. That would have an immediate effect on the capital that banks can lend to small businesses and hard-pressed home owners.
Bill Esterson
The hon. Gentleman says that his solution is to get the banks lending again. This Government have categorically failed at that. What we are coming forward with is a concrete set of proposals. He has acknowledged that youth unemployment in his constituency is a problem and that it has doubled since his Government came to power. Why will he not accept concrete proposals that would deal with the blight that faces many young people in his constituency?
Charlie Elphicke
The hon. Gentleman is simply suggesting that we give with one hand and take away with the other. He might think that he can throw lots of money at dealing with the problem of youth unemployment, but he would meanwhile be constraining businesses in getting the capital that they need to create new jobs and maintain their existing jobs. That is the central flaw in the Opposition’s argument. They want to take more money out of the banking system when capital and lending are already constrained.
The issue that we need to deal with is bonuses. The Government have taken action on bonuses in the taxpayer-owned banks. They have said that there will be no cash bonuses of more than £2,000 at the taxpayer-owned banks. It is right to have longer-term share incentivisation schemes, which align people’s interests with the success of the banks over the longer term.
Grahame M. Morris
The hon. Gentleman is developing an interesting argument. Does he agree that bonuses have been too high not just in the state-owned banks but in the privately owned banks, and that shareholders should do their duty and exercise some control over bonus pots? Bonuses have been paid in banks, such as Barclays, where performance has clearly not justified them.
Charlie Elphicke
Shareholders have been exercising control. Under this Government we have seen the shareholder spring and real action by institutional investors to restrain pay in the boardroom, which grew so much under the previous Government. Under the current Government, there has been action to ensure that shareholders have far greater power over remuneration reports and can push down the excessive rewards that have been given for not enough success.
It is right that an honest day’s work means an honest day’s pay and really good work deserves really good pay, but it is fundamentally wrong to say that the Government have not taken action. They have encouraged shareholders to do their bit as business owners to ensure that we do not have the excessive pay of yesteryear. A responsible Opposition would say, “We congratulate the Government on ensuring that excessive pay is stopped, and we take responsibility for the fact that when we were in government, we allowed a something-for-nothing culture in which everyone knew the price of everything and the value of nothing.” We need an understanding of the value of things once again. The Government have got it right by saying that there will not be excessive bonuses in the taxpayer-owned banks. Although the Project Merlin agreement was not perfect, it was a move in the right direction, as is the permanent bank levy that the Government have introduced, which raises £2.5 billion a year.
Bill Esterson
The hon. Gentleman keeps saying that the amount raised by Labour’s levy was lower than £3.5 billion, but the Office for Budget Responsibility has given only one figure. Can he confirm what it was?
Charlie Elphicke
The OBR has given so many different figures that I do not know exactly which one the hon. Gentleman is referring to. I will read him what Lord Sassoon said:
“The net yield raised by the bank payroll tax is estimated to be £2.3 billion, while gross receipts were £3.45 billion. An explanation of the methodology underlying the estimate of net yield can be found in”
a previous written answer. He continued:
“In line with guidance from the Office for National Statistics, the yield from the bank payroll tax was allocated to the 2010-11 tax year, as this is the point at which the tax was passed into legislation.”—[Official Report, House of Lords, 20 January 2011; Vol. 724, c. WA57.]
The current Government’s levy on banks therefore raised more than the previous Government’s levy.
The previous Government said that their levy was meant to be a one-off, but now Labour is in opposition it is saying, “Let’s make it permanent.” It also wants to make it additional to the permanent bank levy, and it is using the recent scandal, of which Barclays is the first bank to be found guilty publicly, as an excuse to do that. It should be more responsible in opposition than that.
Bill Esterson
As the hon. Gentleman will not admit to the figure that the OBR gave for Labour’s levy, I will tell him that it was £3.5 billon. The Government set up the OBR as an independent organisation to give such figures, so I am absolutely amazed that he will not rely on it. That is nearly double the amount raised by the current bank levy in its first year, and significantly more than is predicted for coming years. As we have heard from the shadow Minister, the predicted figure is falling because of the recession that has been created in Downing street.
Charlie Elphicke
I believe that the OBR’s figure was for gross receipts, which were not £3.5 billion but £3.45 billion. We need to examine the net yield raised, which was £2.3 billion. That is a lower figure than the £2.5 billion raised under the current Government’s system. I appreciate that the difference between net and gross can be confusing, because not all of us are accountants—I certainly am not. Nevertheless, more cash is coming through the door under the current Government’s arrangements.
The hon. Gentleman’s argument misses a central point, which is that the Opposition want their bank bonus levy to be an additional impost on the banks. My concern is that that would pull more capital out of the banking system. Right now, we need to lend to business and kick-start the economy.
Grahame M. Morris
The hon. Gentleman says that accountants know the cost of everything and the value of nothing, but how does he weigh the cost to the banks against the cost to this lost generation—the 100,000 people in Dover, Easington and the constituencies we represent—consigned to a life on the dole?
Charlie Elphicke
If we get lending going again, the economy growing again and decent private sector jobs creating more wealth as a nation, we will do better over the longer term. Having short-term measures to create jobs out of thin air—the 100,000 jobs that the Opposition talk about, for example, which would broadly be public sector-type and make-work-type jobs—is not the way to create a sustainable economy. We need to expand the private sector, expand business and expand jobs, so that they are sustainable over the longer term, not just for a year or two.
Catherine McKinnell
I appreciate the theory that the hon. Gentleman is putting before the House, but is he aware that the Welfare Reform Act 2012 is projected to cost £25 billion more than was predicted in 2010? So his theory is just not working.
Charlie Elphicke
The hon. Lady knows that the economic recovery is being held up by the chilling effect of the eurozone and because the previous Government made an even bigger mess of the economy than was previously thought. So of course it has taken us longer to recover. None of us wants our economic difficulties to continue; we want the economy to improve, but this can be done, in part, by getting banks lending again and ensuring they have the capital needed to do that safely.
Charlie Elphicke
I have taken enough interventions. I have been generous in giving way and in dealing in detail with the hon. Gentleman’s points in particular.
The Opposition are saying, it seems, that we should take more money out of the banking system, but that would be irresponsible because it would constrain banks’ ability to lend. The Opposition use Barclays as an excuse to blame everything on greedy traders manipulating the LIBOR interest rate. I would urge caution, however, because I have looked through some of the internal documents floating around, particularly the note of a conversation involving Paul Tucker of the Bank of England. If I may, Madam Deputy Speaker, I shall briefly read it to the House by way of scene setting and to demonstrate the Opposition’s mischievousness in seeking to impose this tax.
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sure that the hon. Gentleman is about to make a fascinating point, but he will of course assure me that it is relevant to the new clause.
Charlie Elphicke
It is indeed, Madam Deputy Speaker, because a key part of the Opposition’s rationale for the new clause is that what happened at Barclays was so disgraceful that we need to punish the bankers. A large part of the shadow Minister’s argument is that these bankers are outrageous and we need to impose a tax. My point, however, is that we need to consider the wider picture. I am particularly concerned about the comments concerning what the previous Government did on regulation as well as tax. It says here:
“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
It seems it was not only greedy bankers manipulating the interest rates and putting pressure on the LIBOR interest recording; it seems more clearly to have gone to the heart of government and to have been sanctioned by Downing street, according to some comments on the internet. When we talk about how to tax the banks, we need to consider how to get more lending and ensure responsible banking with incentives for the long term. We also need to ensure that members of the previous Government accept their responsibility for the Barclays scandal, the LIBOR situation and their own behaviour.
Catherine McKinnell
The information that the hon. Gentleman is laying out is very interesting, but I would like to make it clear that the Labour party has been calling for an additional levy on banks’ payrolls this year for months, if not a year—I do not have the exact date. The scandal that has unfolded this week has highlighted the contribution that the banks made to the financial collapse and the collapse of the banks, which led to the economic recession that we have suffered. For that reason—
Madam Deputy Speaker
No, not okay. All interventions are supposed to be brief, and that includes Front-Bench interventions. I think we have got the gist of it now.
Charlie Elphicke
What I have set out also highlights the previous Government’s role in failing to regulate and, it seems, in indulging in a bit of market manipulation pressure of their own. I do not think that is acceptable. In her scene setting, the shadow Minister was basically saying, “What happened at Barclays is outrageous; therefore we need to do this.” What I am saying is that we should be careful what we wish for, because banks need enough capital to lend to small businesses, to create the jobs and money that we need to expand the economy and make this country a great success in the next 10 years, building Britain back up to the sort of success that we saw in the ’80s.
Ian Lavery (Wansbeck) (Lab)
New clause 13 is extremely important and deals with the bank bonus tax for youth jobs. It is an admirable new clause.
It is indisputable that the financial services industry is an essential part of our economy, but equally, there must be an acceptance that the industry—the banks and the financial institutions—needs to pay its way. The June 2010 Budget announced that a levy based on banks’ balance sheets would be introduced from 1 January 2011. Labour supports the bank levy, but we want to go further. We want to repeat the bankers’ bonus tax, which brought in an estimated £3.5 billion. We can argue about net and gross, as the hon. Member for Dover (Charlie Elphicke) explained; however, as far as we on this side of the House are concerned, the bankers’ bonus tax brought in £3.5 billion. Despite slight increases in the rate of the levy, the Government’s failure to repeat Labour’s bank bonus tax—and, in the meantime, create more than 100,000 jobs for young people—means that the banks simply received tax cuts last year and will do so in future years. It is wholly unacceptable, when we have a double-dip recession, for us to allow banks off with fortunes and tax cuts year on year.
In the last financial year, the amount raised by the bank levy was just over half the amount raised by Labour’s bank bonus tax—£1.8 billion, compared with £3.5 billion. The Chancellor’s spending review plans have simply failed. The Government’s austerity measures have led to the flatlining of growth in the economy, resulting in long-term youth unemployment spiralling to record levels. In the last year it has gone up by 112%, while the number of young people out of work for over a year has gone up even more, by around 156%. That is the result of the Government scrapping the future jobs fund, immediately after they came to power, without putting a viable alternative in place. They had no idea what would replace the fund or how on earth they would be able to create any employment, for young people in particular. The Work programme started only a year later, in June 2011, and we all know now, from people coming to our surgeries, about the difficulties that the workfare and other programmes have created.
That is why we are calling for Labour’s youth jobs guarantee, which would redress the Government’s scrapping of the future jobs fund. On a cautious estimate, we believe that the bank bonus tax could raise at least £2 billion this year, which the Government could use to build thousands of affordable homes and introduce the real jobs guarantee for young people who are long-term unemployed.
As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million, and would provide a six-month job for every 18 to 24-year-old who had been on jobseeker’s allowance for 12 months or more. We estimate that it could assist up to 110,000 people in that category. The Government would pay full wages directly to the business, which would cover 25 hours of work per week at the minimum wage. That would equate to about £4,000 per job. In return, the employer would be expected to cover the young person’s training and development for a minimum of 10 hours a week. The ultimate objective would be the opportunity of a permanent job at the end of the six months. New clause 13 would tackle the issue of youth unemployment, and make the banks pay their way.
Graeme Morrice (Livingston) (Lab)
It is a great pleasure to follow my hon. Friend the Member for Wansbeck (Ian Lavery), although I noticed that my hon. Friend the Member for Easington (Grahame M. Morris) also rose when you called me, Madam Deputy Speaker.
Madam Deputy Speaker (Dawn Primarolo)
Order. I hope this does not mean that I will get a speech in stereo; I hope his hon. Friend will wait until I call him before he speaks.
Graeme Morrice
A good point, Madam Deputy Speaker. I suspect that my hon. Friend might repeat some of my points, as we Labour Members have robust arguments in support of the bank bonus tax in new clause 13, to which I am delighted to lend my support this evening.
Given the dramatic events at Barclays over the past few days, it is particularly apposite to be discussing the contribution of the banks to the well-being of our economy and how to deal with the excessive bonus culture in the financial services sector. Our position on this issue has been clear and consistent: bonuses should be exceptional payments paid for exceptional performance. Far too many highly paid bankers, however, continue to be paid astronomical bonuses, often seemingly with little or no connection to meeting their performance targets. While such excessive and unjustifiable bonuses remain, the case for a tax on bank bonuses is strong and undoubtedly popular with the public. The LIBOR scandal at Barclays will cause the banks’ reputation to plummet to a new low. Few would have believed that the public’s opinion of them could get any worse, but they manage to keep coming up with inventive new ways of further undermining the trust of their customers and the wider population.
Bill Esterson
My hon. Friend has made an important point about the popularity of a tax on bank bonuses with the public, but the tax should not just be popular; it should also work. Nothing that Government have done has remotely worked, and those failures—including their failure in regard to bank lending—are the real reason why this is the right thing to do.
Graeme Morrice
I agree, and I shall deal with that aspect of bank lending in due course. It is vital for people’s trust in British banks to be restored as quickly as possible.
Mark Lazarowicz
Is not one of the tragedies the fact that the hundreds of thousands of people who work in the financial services sector—many thousands of them in my constituency and that of my hon. Friend—are being let down by those who are receiving the big bonuses? I was shocked and horrified by what is being done in their name, because they are often the victims of the criticism and the policies in the banks which have led to today’s debate.
Graeme Morrice
I agree. Many of my constituents who work in the banking and financial services sector contact me regularly to express concern about what their employers are doing.
Bob Stewart
The problem with the banks seems to be that they will not lend because they are frightened, and they are frightened because they must have money themselves. Perhaps we should think about the connection between bonuses and the way in which banks lend to small businesses, and perhaps a decent bonus could then be given to a bank that is run by someone who helps the economy by lending.
Graeme Morrice
That is a valid point, with which I shall deal shortly.
The strength of the balance sheets and the corporate reputation of our banks are crucial building blocks enabling us to restore confidence in the economy and return to growth. However, I am afraid that the Prime Minister’s limited parliamentary inquiry into what happened at Barclays will not command the confidence of the public, or be regarded as an adequate response to the catalogue of failings and scandals that have befallen our banks in recent years.
The full public inquiry into banking standards that has been called for by my right hon. Friend the Leader of the Opposition would be the most effective way of demonstrating to the public that both politicians and those in the industry are serious about ending unacceptable practices and taking steps to restore faith in our banking system. A repeat of the bank bonus tax would help to reassure the public that bankers are making amends for their part in our current economic woes by helping young people to return to work and enabling new homes to be built.
I know that many Government Members believe that the bankers have been let off lightly in regard to bonuses and paying their fair share towards recovery. Senior Government figures have talked tough on bank bonuses, but have stopped short of taking meaningful action. Indeed, rather than ensuring that bankers made a bigger contribution, the Chancellor gave them a massive tax cut in the Budget, as a result of which the richest bankers will pay millions less in tax from next April. As Deborah Hargreaves, chair of the High Pay Commission, said when the new 45p rate was announced:
“This tax cut for bankers will be galling for the millions of pensioners who will see their bills go up because of this Budget.”
As well as the reduction in the personal tax paid by bankers, the Chancellor’s cuts in corporation tax mean the banks received a tax cut last year and will do so again in future years. Despite the Chancellor’s slight increase in the rate of the bank levy in January this year and 2013, the Government’s failure to repeat the bank bonus tax leaves the banks considerably better off, while our constituents face cuts in tax credits, higher living costs and a squeeze on millions of pensions.
At the same time, small businesses across the UK continue to struggle to access the lending they desperately need to grow and create jobs, with lending to SMEs having fallen by more than £9.5 billion last year.
Charlie Elphicke
Why then make it harder for banks to lend by taking more money out of them through the Opposition’s proposal?
Graeme Morrice
That may be the hon. Gentleman’s opinion, but I reiterate the point that, because of the Government’s policies of the past two years, the official figures show that banks lent £9.5 billion less to SMEs last year than in the previous year, so there is a problem now.
Bill Esterson
My hon. Friend is right about the poor state of bank lending, but the reality is that the banks are not lending because they have no confidence; they have no confidence in this Government because they have pushed us back into a double-dip recession. That is the reality, and that is why action is needed. That is why this Labour proposal is the right way forward to kick-start the economy and start to solve the problem of youth unemployment.
Graeme Morrice
I agree. I am sure that many Members have been contacted by SMEs based in their constituencies who are desperate because they cannot attract as much lending from the banks and other financial institutions as they enjoyed a number of years ago. While many are critical of the lending banks, they are also critical of Government policy. Members on the Government Benches may not agree with that, but it is the reality, and that is why people are approaching us with these complaints and concerns.
The continued failure on lending is making a mockery of the Chancellor’s promise to link the pay of the chief executives of each bank with performance against SME lending targets, but there is now another chance for Members on the Government Benches to demonstrate to their constituents that they are genuine about making bankers pay their fair share. Labour’s bank bonus tax raised about £3.5 billion, as confirmed by the independent Office for Budget Responsibility. As my hon. Friend the Member for Wansbeck (Ian Lavery) said, even on a cautious estimate, we believe that this year alone it could raise at least £2 billion, over and above what is already in place. The Government could use those funds to introduce the real jobs guarantee for young people who are long-term unemployed, potentially helping 100,000 into work. It could also be used to build thousands of much-needed new affordable homes.
In conclusion, by supporting the new clause hon. Members can show that we are serious about holding bankers to account and ensuring that they pay their fair share, while also raising additional funds to address the people’s priorities—youth jobs and affordable homes—and make a real contribution to turning around our ailing economy.
Rushanara Ali (Bethnal Green and Bow) (Lab)
I support the new clause because today more than 1 million of our young people—one in five of them—have no job. That is not because they are not trying to find work and it is not because they are not working hard to get experience and skills; it is because in this flagging economy—in this double-dip recession created by this Government’s failed economic policies—the jobs just are not there. Yet, at the same time, we see the banks paying out huge bonuses to some of those responsible for the economic mess we are in. Britain is now bottom of the pile for social mobility, and that is due to this Government’s failures. The top 1% of our society now control a greater share of the national income than at any time since the 1930s. Despite these crippling inequalities, this Government’s priority has been to give tax breaks to millionaires while building their austerity programme on the backs of some of the poorest in this country.
The current labour market is a bleak place. The hardest hit by unemployment remain women and older people, who face discrimination in the labour market, and of course young people. Long-term unemployment is at its highest since 1996. As my hon. Friends have already said, youth unemployment has increased by more than 100% in the past year. That is a travesty, because it means that we have failed to help young people live up to their ambitions and find the jobs they want—or, indeed, find any jobs at all. It also means that a great wealth of talent and productivity is being lost. That is a travesty, too, and one this Government should be ashamed of. According to a recent Association of Chief Executives of Voluntary Organisations report, that will cost the Treasury £4.8 billion this year and it will cost the economy £10.7 billion in lost output. I support the new clause because the Government’s plans are driving a wedge through our society, leaving too many people behind.
Social mobility in this country has ground to a halt, and as I represent one of the most deprived areas of London, I see that all too clearly; it has always been hard, but now we are moving backwards. Every week, I meet young people in my constituency who are losing out. My area has one of the highest rates of youth unemployment, at more than 8%. The loss of the education maintenance allowance is making it harder for these young people to stay on in school. The lack of jobs makes it seem like the rising cost of university or education is just not worth it. Georgia Rowe, a student at one of the colleges in Tower Hamlets, recently said to me:
“I thought about university but it doesn’t guarantee a better job. You might as well not be in debt.”
This is the generation of young people who are being left behind.
That is why Labour has proposed the real jobs guarantee to help give our young people a chance, as we know the scarring effects that long periods of unemployment can have. People need work experience, training and to learn the skills that make them more employable in today’s difficult labour market. I know what a massive difference it can make to a young person’s chances if they get a little experience. Programmes such as Job Ready, which is hosted by Futureversity in my constituency, and Skillsmatch, and those of the Adab Trust and City Gateway, along with access to a job, can help people overcome the psychological barriers to economic opportunity, and build ambition and confidence. They connect business and young people, opening up new opportunities and partnerships, but those programmes are all struggling without adequate support.
The Work Foundation has rightly called the Government’s approach to youth unemployment “piecemeal” and “fragmented”. The Government’s headline plan to get young people back into work through the Work programme and youth contract is failing. They have managed to get only about a third of those on the programme into jobs, and in this age of austerity that is not good enough. Recent figures in my constituency showed that at least 15 people were chasing every job vacancy. The Government should be looking for real ways to help solve these problems and not continuing to kill off jobs and growth prospects through their draconian austerity measures.
Young people in my constituency can see the opportunities a short distance away in Canary Wharf and the City of London. They want to know how to get jobs there. They see bankers in the city getting tens of thousands of pounds in bonuses while unemployment soars. This is what happens when social mobility grinds to a halt. Those kids in my constituency, who are as talented and aspirational as any others, simply do not have the same opportunities, so it does not seem like such a bad idea to ask those who have so much to pay a little more.
When I consider the behaviour of the banks and some of their employees, I do not always see shining examples of socially responsible companies. The finance sector is a vital part of our economy and many companies and their staff behave responsibly, but too many of the highest paid behave the worst, as we have seen with the Barclays bank scandal. Such behaviour is at best reprehensible and at worst criminal and requires inquiries and investigations as soon as possible, yet those people are some of the highest paid in the country. Bob Diamond earned 600 times more than the average income in my constituency, so a tax on the excessive bonuses received by people such as him is only too fair. But instead the Government are reducing the tax paid by banks, with the bank levy raising just over half as much in 2011-12 as Labour’s bank bonus tax would have raised this year.
Mark Lazarowicz
I was interested to hear my hon. Friend say that Bob Diamond’s bonus and salary were 600 times the average wage in her constituency and want to highlight that point. Most of us understand that top bankers will probably be paid a lot more than most people in the country under any system, but such a discrepancy is obscene. That is what people find so disgusting and what they want to see tackled.
Rushanara Ali
I thank my hon. Friend for his intervention and hope that the Government are listening. They must understand how serious the matter is and the deep resentment and anger that are felt in constituencies such as mine. The borough that contains my constituency is also the borough in which Canary Wharf is based and the injustice of some of the behaviour and the worst abuses in the banking sector must be addressed. The Government must take responsibility.
Bob Stewart
It is very decent of the hon. Lady to give way. When she refers to figures that are 600 times a normal wage or to huge bonuses, at least there is compensation. If those sums are declared, quite a lot—perhaps 40%—will come back to HMRC, which we could then redistribute. It is better that way than if it is hidden offshore.
Rushanara Ali
The hon. Gentleman should perhaps look at the tax records of Barclays bank, as he will find that it has not paid the taxation that it should have paid. His Government should do more to ensure that the taxes that should be paid are paid. I also think that his Government has a poverty of ambition in not accepting our amendment to make a massive difference to unemployment in constituencies such as mine. I urge the Government to think hard about the impact on the 1 million young people—a sizable number of whom are in my constituency—and consider what could be done to address the problem rather than trying to defend bankers’ bonuses.
Mel Stride (Central Devon) (Con)
The hon. Lady is being very generous in giving way. The notion of very high bankers’ bonuses is nothing new, of course, as it has been going on for an awfully long time. Her party was in office for 13 years. Could she explain exactly what it did about that?
Rushanara Ali
After the financial crisis, as part of the deal, my party introduced the bankers’ bonus tax and we raised £3.5 billion that went towards the attempt to get people back into work that was so successful in constituencies such as mine. I urge the hon. Gentleman’s party to consider what works, and that did work. Instead of being partisan and ideological, his party should look at what works and enforce it. The people of this country will not forgive his Government for not acting, for creating a double-dip recession and for leaving so many people out of work. It is a disgrace and he should apologise, with his party, for presiding over two years of being in government in which they have caused a double-dip recession and much more unemployment. That is what his party should be focused on and addressing, not trying to score party political points. You are in government. Do something.
Madam Deputy Speaker (Dawn Primarolo)
Order. Has the hon. Lady given way or has she concluded?
Madam Deputy Speaker
Good. May I remind everybody that I am not in government?
Mel Stride
It is a great shame that you are not, Madam Deputy Speaker.
Will the hon. Member for Bethnal Green and Bow (Rushanara Ali), by the same token, apologise for the doubling of unemployment under the previous Government?
Rushanara Ali
When my party was in government, we cut unemployment. We got a million young people into work. After the financial crisis, when unemployment started to increase, we did something about it. I urge the hon. Gentleman’s Government to do something about unemployment, instead of looking backwards. Do something about the unemployment rate which is causing so much damage to our country, instead of doing what his party did when it was in power in the 1980s, which was to go around telling people that unemployment was a price worth paying.
The hon. Gentleman’s party is demonstrating that the nasty party is back with a vengeance. That is devastating for people in constituencies such as mine. They do not want to see the nastiness of the party. They want jobs. I suggest that his party focuses on creating jobs and growth. That is what people want.
Rushanara Ali
I should like to conclude my speech. I have given way enough, but if the hon. Gentleman wants to hear more about the issues affecting our country and my constituents—[Interruption.] I give way.
Gordon Birtwistle
I am very grateful to the hon. Lady. Would she concur with the noble Lord Mandelson when he said that the Labour party was intensely relaxed about people being filthy rich?
Rushanara Ali
The noble Lord Mandelson said that those people should pay taxes, and when my party was in power we brought unemployment down. That is what I urge the hon. Gentleman’s party to act on. I urge the Government, instead of defending bankers’ bonuses, to think about the 3 million people who are out of work. That is the responsibility of his party and his Government. He should talk to them about solving the current problems, instead of looking backwards.
Mark Durkan (Foyle) (SDLP)
When we are talking about banksters—to use a term that was coined as far back as 1932 by an Irish-American radio priest—we are talking not just about people who are filthy rich, but about people who are filthy rich by foul means. They have engaged in rackets, they get paid in packets. Why do they deserve a cut in their taxes?
Rushanara Ali
They do not deserve a cut in taxes. I hope the Government will take serious action, otherwise the public, who already feel this way, will rightly believe that this Government are not for them but for the vested interests and the millionaires who make so much money and are not willing to pay their dues or to make the appropriate contribution. I am sure the Government do not want to be on the side of people who are milking the system and making so much money and not making the appropriate contribution.
I call on the Government to pay attention, to listen not just to my party, but to the millions of young people who want a job and an opportunity to make a contribution to this country. We have a plan that could help get them get into real work and would reward those who work hard—a plan that is costed and paid for by asking some of the wealthiest in our society to contribute just a little more. With the economy back in a double-dip recession and economic confidence so low that investment growth has virtually ground to a halt, job opportunities for these young people desperate to find work will not appear without help. I hope the Government will see sense and give young people in Britain the much-needed support that they deserve, by supporting the new clause.
Alison McGovern
I would like to begin my remarks on new clause 13 by agreeing with much of what has been said today by Opposition colleagues. I want briefly to take the House back a couple of years to 2010, when I was lucky enough to secure an Adjournment debate on young people and unemployment, the first such debate I led in the House. For me, it could not have been on a more important subject than the position of young people in the labour market in my constituency. I do not wish to put myself forward as some kind of Cassandra or some awful foreseer of what has come about, but I warned the Minister then that the swift withdrawal of some of the more successful things the Labour Government had been doing to tackle young people’s unemployment would lead to more young people being on the dole. Sadly, that is what has happened. In fact, two years later the ONS tells us that an extra 65,000 16 to 24-year-olds are now without work. That is not just a waste of talent and funds, but a moral shame.
I want to say a few words on that subject and why new clause 13 is so important to young people facing that difficult situation. The Government have had two years to tackle the problem, yet all of us here have to admit that the problem is getting worse, not better, and that action is needed more today than it was in 2010. The Government would not listen then; I beg them to listen now.
Bill Esterson
My hon. Friend has a proud record, before and since reaching this place, of advocating for young people and employment. She is quite right to draw attention to the Government’s record. We should remember that we saw the same thing happen in the ’90s. The Government are going back to exactly the same failed policies of the ’90s. The difference between Government and Opposition Members is that when we were in government we looked after unemployment. We kept unemployment, repossessions and business failures low. Under this lot they have gone up and we are seeing the problems for young people, which is why we need the action we are debating right now.
Alison McGovern
I thank my hon. Friend and neighbour in Merseyside for his intervention. He is quite right. The return to things such as the youth training scheme has been one of the most unfortunate aspects of the Government’s work in this area.
Mel Stride
The hon. Lady makes the important point that youth unemployment is deeply regrettable and has been rising recently, but she skips over the fact that youth unemployment has been rising since 2004, so most of the period of that rise actually occurred on her watch when the kinds of policies she is advocating were clearly not working.
Alison McGovern
The hon. Gentleman needs to be careful about apportioning blame, because although we have seen an extreme rise in youth unemployment over the past couple of years because of the recession—I will move on to the problem of demand in the economy later—under the Labour Government there was successful action to prevent levels of youth unemployment from rising to those we saw in the ’90s. If he wishes to, we can talk at length in the Chamber on another occasion about some of the structural reasons for young people’s unemployment, such as how skills are transferred in different ways, how small businesses recruit differently, which hits younger people more than it does those with experience in the economy, and why those patterns were starting to emerge from 2005. However, in new clause 13 we are trying to establish the urgency of getting money from a particular source and prioritising the needs of young people in my constituency and in his.
The Association of Chief Executives of Voluntary Organisations has done an important piece of work to calculate the cost to the Exchequer of young people being out of work, and, although I hope that Treasury Ministers will have already heard the figures that my hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) cited, I want to alight on this one. If youth unemployment continues at current rates, by 2022 the cost to the Exchequer and to the economy in lost output is estimated to be £28 billion—on top of the human and social costs. That is a huge figure, and we as a country cannot afford to see this crisis continue.
I shall take a few moments, however, to consider not only the financial cost, huge and important though that is, but the impact of the crisis on individuals, on their pride and on their self-worth. I mentioned earlier the Government’s own research, carried out by the Department for Work and Pensions, into the future jobs fund, and if Ministers have not read it they would do well to do so. The research, first, considered the impact on young people who took part in the future jobs fund programme, and it is a shame that the hon. Member for Dover (Charlie Elphicke) has left his place, because I wanted to ask him—I tried to intervene on him to do so—whether he had met, spoken to or asked the opinion of any young person who took part in the future jobs fund.
Just in case hon. Members have not had the opportunity to read the research, however, I shall quote a young person and how they were feeling prior to the introduction of the future jobs fund. They said that they were
“feeling a bit low. I was about four and half, five months, unemployed and I thought ‘oh no, this isn’t good’. Most employers I spoke to, it was like if you’ve been unemployed for more than 2 months, it really puts people off. I knew how to do a job; it’s just the fact that I’d been unemployed for nearly 5 months. Almost half a year, which was quite embarrassing really. I know there was nothing out there, but it was still kind of embarrassing.”
Despite this person realising that aggregate demand and low job vacancy numbers had caused their problem, they blamed themselves, so I ask hon. Members to consider the impact of low self-esteem and poor mental health on the extra 65,000 young people who have become unemployed since 2010.
The research, secondly, asked young people how they felt about their work once they had taken part in a future jobs fund employment placement, and to me the following quotation says it all. On the question of what the most important gain was, one person said:
“Trust in my determination. Self belief, the belief from my employer that I am able to succeed”.
What more important thing could anybody have for success in life than self-belief? When people are left to languish on the dole, such self-esteem is undermined every single day.
Mr James Gray (North Wiltshire) (Con)
I strongly admire the sincerity of the hon. Lady’s compassion for those people, but I am not sure that reading out two or three vox pops necessarily adds to the intellectual coherence and probity of the argument. She admitted a moment ago that youth unemployment was dangerously high during the Labour years. It remains very high, and we are very worried about that, but what does she actually propose we should do about it?
Alison McGovern
I am not sure I know where to start. I am reading out the testimony of young people who have been unemployed. That is not some kind of media vox pop; it is an example of real people who have been affected by the phenomena that we have been talking about, and we should listen to them. If the hon. Gentleman does not want to listen to what I have to say, let him listen to young people in my constituency and in his own, and to how they feel about being thrown on the scrapheap.
I shall briefly discuss bankers’ bonuses, and why the measure before us is an entirely appropriate one to take in order to fund for young people employment that will stand them in good stead for the rest of their careers. Profit-making banks have had a reduction in corporation tax, but I shall not go over the reasons why the tax in question is an appropriate one to levy on their payroll. We have to face the fact that in the City of London we have seen behaviour that cannot be tolerated. For the sake of the future of our young people, what is needed now is some sort of restorative justice to rebalance people’s ability to make a good life for themselves. Young people in this country are facing a more difficult labour market than they have for many years. I beg the Government to listen and take some action now.
Grahame M. Morris
Thank you for the differentiation, Madam Deputy Speaker. It is a pleasure to be in such august company as that of my hon. and good Friend the Member for Livingston (Graeme Morrice)—
Madam Deputy Speaker
Perhaps the hon. Gentlemen are trying to confuse me, because now they are sitting next to each other—but only one has the Floor.
Grahame M. Morris
I am grateful to you, Madam Deputy Speaker, for the opportunity to speak in this debate and to follow my hon. Friends the Members for Wansbeck (Ian Lavery) and for Livingston, and indeed the hon. Member for Dover (Charlie Elphicke), who served on the Public Bill Committee. He is not in his place at the moment, but I found his contribution interesting, as always.
I support new clause 13, tabled by the Opposition Front-Bench team, which would introduce a bankers bonus tax to fund a job guarantee for every young person who has been out of work for more than 12 months. History will judge this Budget as chaotic. It has been a Budget of U-turns—on pasties, on caravans, on skips and on charities. It should be remembered as a Budget for “millionaires row”—admittedly, that is a little sparse at the moment—but I hope it will not be remembered as the Budget that let the greedy bankers off the hook. Tonight, I want to put on the record the impact on the north-east.
The north-east requires an alternative vision for economic confidence, growth and jobs. The proposals in new clause 13 of a guaranteed paid job for people who have been out of work for 12 months, as suggested by the Institute of Public Policy Research North, would boost the process of regeneration that is so badly needed in my region. According to economists at IPPR North, coalition spending cuts have worsened the impact on our region’s economy and added to unemployment—especially youth unemployment—in the north-east. Well over 32,000 public sector jobs have been cut. I remind the House that unemployment in my region stands at 11.3%; 145,000 people are out of work. The private sector-led recovery that was promised has clearly not materialised in my region, at least, and a recent report from Northern TUC shows declining employment in the private sector.
In the Public Bill Committee, I gave some examples of the private sector haemorrhaging jobs in my constituency, and I do not propose to repeat that tonight. The problem we face—the hon. Member for Beckenham (Bob Stewart), who is no longer in his place, raised this point—is that money is being sucked out of the region through public spending cuts, benefit cuts and the slashing of regeneration and infrastructure projects, worsening the economic problems. The Government, through their policies, are squeezing out demand from the regional and national economies. That is counter-productive, as it pushes up both the benefits bill and Government borrowing.
The Prime Minister and the Chancellor pretend that there is no alternative, but the Opposition recognise that politics is about priorities and making choices. Sadly, the Chancellor has chosen to give a £40,000 tax cut to 14,000 millionaires, while more and more people in my area are losing their jobs and young people in particular have little prospect of finding paid employment. He has also chosen to keep VAT, a deeply regressive tax that hurts the poor, at 20%.
IPPR North has said that business confidence is failing. The lack of confidence among employers has created a hire freeze across the north that looks likely to get worse. The unwillingness of employers to take on permanent staff only increases economic insecurity for ordinary households. Where vacancies do exist, they are often for low paid and insecure work. Given that more than 1 million young people are out of work, we need real action from the Government to stop the next generation from wasting away on unemployment benefits. That is where the real jobs guarantee comes in. We need to offer a jobs guarantee, especially to young people, to stimulate the economy and offer personal hope to each individual.
Richard Fuller (Bedford) (Con)
General Government expenditure accounts for 50% of the economy, our debts are at record levels and we have the highest deficits. Does the hon. Gentleman think that the answer to debt, deficit and the Government’s massive share of the economy is for the Government to do more or to do less?
Grahame M. Morris
I would have more respect for the hon. Gentleman’s intervention if he had sat through the whole debate, because those points have been raised. It behoves the Government to do more, not less; we have to learn from the lessons of history. I urge hon. Members to support new clause 13.
Mark Lazarowicz
I want to say a few words in support of a bank bonus tax. I emphasise that I am supporting that not to bash the bankers, but to end the unacceptable face of banking in the form of an excessive bonus culture that is still far too widespread.
As I said earlier, the vast majority of people who work in financial services certainly do not get vast bonuses; many thousands of people in my constituency work hard behind bank counters or in bank offices serving customers, and they are often on modest incomes. Many have paid with changes in working conditions, while others have paid with their jobs, when redundancies flowed from the financial crisis caused by the irresponsibility of senior executives. We are not targeting those people; we want to do something about the small minority who are still getting excessive rewards.
A study published at the end of June showed that average pay for chief executives at 15 leading banks in the US and Europe increased by 12% over the last financial year. That may be less than the 36% increase in the previous year, but whatever the increase—it is about 50% when we add both increases—it is wildly out of line with falls in profits and share prices that have frequently characterised the sector. That is not performance-related pay in any sense that most people would understand and it is certainly not a performance that would justify what is effectively a further tax cut on top of a tax cut for the highest paid.
A tax targeted on bank bonuses is necessary because the existing attempts to curb the bonus culture have so obviously failed. That is the key point. The issue is not about saying that people should not be very well paid at the top of banks and financial institutions, but we want to get away from a position in which sums wildly in excess of anything that could be said to be deserved are paid as a matter of course. None of the steps taken so far has changed that culture, even in an era of financial crisis among the banks and beyond.
The second reason why we want a bank bonus tax is that it would raise money for some valuable purposes. The issue of jobs for young people affects all our constituencies. My constituency normally comes in the middle range of unemployment across the UK, and we have seen a substantial increase in youth unemployment. I certainly want that issue to be tackled in my constituency.
We are also saying that the bank bonus tax would be used to provide affordable housing. That, of course, would bring two benefits. First, it would bring more housing into the sector. Constituencies such as mine have to some extent, although on a lesser scale, experienced the same phenomenon as happened in London, where high rates of pay in certain sectors such as financial services have pushed up house prices and made it harder for people on lower incomes to get affordable housing, so this proposal would be important for those people as well. Of course, building affordable housing and new homes also gives a boost to the economy through providing new jobs in the construction sector and helps people who have been out of work because of the collapse of that sector in many parts of the country.
Our proposal of a bank bonus tax would not only tackle the excessive bonus culture but provide jobs for our young people and affordable homes, giving a boost to the construction sector. I therefore hope that the House will support it.
Mr Hoban
We have heard a series of slightly strange speeches by Labour Members. We have become accustomed to their belief that they left us a golden economic legacy, but the reality is that when they left office unemployment was higher than when they came into office. They seem to believe that the problems of youth unemployment started under this Government. At least the right hon. Member for South Shields (David Miliband) has the good sense to recognise that it is a long-standing and deep-seated issue and that its growth started under the previous Government.
Labour Members seem to forget that when they left office the deficit was out of control. We have tackled that and reduced the structural deficit by a quarter.
Bill Esterson
Youth unemployment is higher than when Labour left office, unemployment generally is higher than when Labour left office, and the economy was growing when Labour left office whereas now we are back in recession. Will the Minister confirm all three of those facts?
Mr Hoban
The challenge that we face is dealing with the economic legacy left by Labour, with the huge boom in financial services and the huge bust that followed.
We have heard Labour Members’ story that they presided over a golden age in the financial services sector. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) could not bring herself to admit that the scandal over LIBOR fixing took place between 2005 and 2008 or that the interest rate mis-selling that affected so many small businesses took place in the same period leading up to the financial crisis.
Labour Members deplore the bonus culture, but let us not forget that when they were in government, bonuses were paid out in the year that they were earned and paid out in cash. That was the hallmark of the age of irresponsibility that characterised their time in office. This Government are taking action to tackle the bonus culture. This Government have introduced rules to ensure that bonuses are not paid out in the year they are earned but spread over a three-year period, that they are not paid out in cash but in shares, and, crucially, that they can be clawed back where there have been problems in the business or where there has been wrongdoing. This Government have tackled the bonus culture in the UK whereas the previous Government let it run riot, and we have seen the financial consequences of their so doing.
Mark Lazarowicz
The bank bonus tax was first introduced by the previous Government. In fact, I think that our Government should have done much more about the bonus culture in the banks in the past and was wrong not to do so. However, will the Minister at least accept that at no stage did his Government suggest any action whatsoever to tackle the bonus culture? He should not suggest that the responsibility lies only with Labour but accept his share of the responsibility as well.
Mr Hoban
We have taken action to tackle the bonus culture by ensuring that the interests of shareholders and management are aligned and that where there is wrongdoing bonuses can be clawed back. That is a significant change that has happened since this Government came to office. In the same way that we are remedying the regulatory failures left behind by the previous Government, particularly by the shadow Chancellor, the inquiry set up into the fixing of LIBOR will ensure that in future LIBOR is regulated to fill the hole in the Financial Services and Markets Act 2000 and ensure that there are criminal penalties for manipulating LIBOR—again, filling the hole left by the shadow Chancellor when he designed the regulatory system.
Mark Durkan
The Minister refers to what the Government have done since coming to office. What did the then Opposition suggest in the previous two Parliaments by way of concrete proposals on regulation or bonus culture or amendments to any of the flawed measures that the previous Government introduced?
Mr Hoban
When the previous Government brought forward the Financial Services and Markets Act 2000, we voted against the decision to transfer the supervision of the banks from the Bank of England to the FSA. We are putting right that failure by the previous Government. We criticised the financial services reforms brought forward by the previous Government in the aftermath of the financial crisis. We said that they were tinkering around the edges and did not address the fundamental problems at the heart of regulation. The work that we did in opposition laid the foundations for a much tougher, more intrusive and more interventionist regulatory regime to tackle the problems left by the previous Government.
Mr Campbell
When the Minister talks about the economic mess, does he mean the £600 billion that the Labour Government had to give to the banks to bail them out and keep them afloat?
Mr Hoban
The UK economy has suffered hugely as a consequence of the financial crisis. It has lost £140 billion in growth. We have to tackle the causes of that failure, as well as tackling the deficit that the previous Government left behind. That is what we are doing through the Financial Services Bill, which is passing through Parliament at the moment.
John Hemming
In December 2008, the then Chancellor said:
“The measures that I announced in October have stabilised the banking system, and inter-bank lending rates have fallen. The three-month LIBOR rate halved to just over 3 per cent. this week.”—[Official Report, 18 December 2008; Vol. 485, c. 1213.]
Does the Minister think that that was a fantasy, like much of what the Opposition propose?
Mr Hoban
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
New clause 13, tabled by the shadow Chancellor, is, in the words of Yogi Berra, the great American baseball coach,
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling)—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide 160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
Charlie Elphicke
How many times over have the Opposition spent that money so far?
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
Catherine McKinnell
I give way to the only Conservative Member to contribute to today’s debate.
Charlie Elphicke
How do the Opposition justify spending this money 15 times over?
Catherine McKinnell
No, we have clear plans: we would like to spend the bank payroll tax on creating youth jobs. I would have thought that Government Members would grasp that opportunity, given that short-term unemployment is up 112% and long-term unemployment is up 156%. I would have thought that Conservative Members would be shouting out for any solution to bring those figures down.
Or are Government Members happy to see another generation of young people thrown on to the scrap heap with no opportunities and no way out? The future jobs fund gave opportunities to young people. It was heralded by the Prime Minister as a good scheme and promises were made not to scrap it, but as soon as the Government took office it was put in the bin. And we have seen little put in its place: the work experience scheme, for which we waited a whole year, is producing very few results.
For that reason, we are proposing a solution. On a cautious estimate, we believe that this year the bank bonus tax could raise at least £2 billion, which the Government could use to create thousands of affordable homes and introduce a real jobs guarantee for long-term unemployed young people. As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million—a small price to pay for tackling the chronic youth unemployment about which Labour Members have spoken passionately this evening.
Under the real jobs guarantee, the Government would pay full wages directly to businesses—again something I would have thought Government Members would support—and support businesses taking on new members of staff. It would cover 25 hours of work at the minimum wage—£4,000 per job—and in return the employer would cover the training requirements and the young people would be required to take the jobs made available. It would be a genuine contract and a real jobs guarantee.
We cannot stand by and watch another generation of young people left to suffer the effects of this double-dip recession, which is why we propose this bank bonus tax as a real solution and why I urge hon. Members to vote for the new clause.
Question put, That the clause be a read a Second time.
Mr Gauke
I beg to move, That the Bill be now read the Third time.
The Bill proposes wide-ranging reforms of the tax system to reward work and promote growth. It supports business and growth, creates a fairer, more efficient and simpler tax system, and builds on our commitment to improving the tax policy-making approach. However, it should be seen against the fiscal backdrop that we inherited.
Before I discuss the Bill in more detail, let me remind Members of the challenges that we face. When we came to power, we were confronted by the largest peacetime deficit that the country had ever seen. One pound in every four was borrowed. Members will recall—[Interruption.]
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am finding it rather difficult to hear the Minister.
Mr Gauke
Members will recall that the independent Office for Budget Responsibility revealed that the underlying damage to the economy and our challenge in repairing it was much greater than anyone had thought. It was therefore vital for us to take decisive action to restore the economic stability that was needed for recovery, and the Bill is part of that. In order to address the enormous debts that we inherited, confront Britain’s problems and get the economy moving, the Government have undertaken a sustained programme of deficit reduction.
As I said earlier, the Bill supports business and growth. It implements milestones for the corporation tax roadmap, overhauls the controlled foreign companies regime, and introduces the patent box.
Mr Alan Reid (Argyll and Bute) (LD)
My hon. Friend mentioned the controlled foreign companies regime. I support the Government’s efforts to ensure that all the tax that must be paid in the UK is paid in the UK, but, as he knows, concern has been expressed about the possibility that by introducing these rules the Government will inadvertently harm small developing countries which may lose tax revenue. I hope that they will ensure that there is no such side effect.
Mr Gauke
We debated that in the Committee of the whole House. The purpose of the CFC rules is to protect the UK tax base, as has always been the case, but the Government have a proud record of supporting developing countries, and we have a firm commitment to meeting our international obligations on that front. This country also has a proud record of building capacity in developing countries and improving their ability to collect taxes. In many developing countries, the UK has already made a substantial contribution, and we will continue to do so.
Both the patent box and the CFC changes form part of the Government’s wider plans, which will help UK businesses to operate in an increasingly globalised world. I am sure all Members agree that those measures are essential to restore medium and long-term growth.
Despite the challenging economic backdrop that the Government inherited, we have made significant progress. We have already introduced a further cut in the rate of corporation tax that will give us the lowest rate in the G7, the fourth lowest rate in the G20, and the lowest rate that this country has ever known. By next year, the Government will have cut corporation tax by 6%, helping to make the UK the most competitive country in the G20. According to the OBR’s assessment of the Budget, the reduction will increase the level of business investment by about 1% by the end of the forecast period. That is equivalent to an increase in the total amount of business investment of £3.4 billion between now and 2016.
Many businesses have seen that we are, as promised, open for business. WPP and others have recently announced that they are considering returning to the UK, or that they wish to set up business here. I am delighted to say that Rowan and Lancashire have already come here, and once the CFC rules are in place in 2013, we shall be looking for more businesses to follow them. Following the Bill’s publication in March, one of the big four advisory firms announced that it was engaged in discussions with between 10 and 15 multinational companies that were considering locating substantial operations in Britain as a result of corporate tax reforms. The CBI has commented that these much-needed changes
“will help make the UK a more attractive place for companies to invest, do business and create jobs.”
The Government aim to create a tax system that is easy to understand and with which it is easy to comply, and the Bill contributes to that. It provides real help for families and business. It raises the personal allowance to £8,105—which, curiously, was not mentioned very frequently in Committee—and, combined with the further increase of £1,100 next year, will mean a tax cut for 24 million people and 2 million people being taken out of income tax altogether.
Sheila Gilmore
The Minister was waxing lyrical about simplification, and I was wondering whether he has reconsidered his view as to whether the proposed child benefit reform creates simplification or complication.
Mr Gauke
If we do not want people earning £20,000, £25,000 or £30,000 a year to be paying for benefits to go to much wealthier households, the alternative would be an extension of the tax credit system. That would have placed a much greater burden both on households and the Government. Of the available alternatives, we have gone for the simpler option.
We are deferring the 3p per litre duty increase that was planned for August to January next year. Action by this Government to reduce the deficit and rebuild the economy is already benefiting businesses and families and keeping mortgage rates low. As hon. Members know, this Government have also had to make difficult decisions so we can tackle the deficit left to us by the previous Administration. They include withdrawing child benefit from households earning more than £50,000. That is a fair way to make savings, so we can meet our targets to cut the deficit.
We are also taking steps to ensure that the wealthy pay their fair share too. The Budget package ensures that the wealthiest will pay five times more than the cost of reducing the additional rate of income tax. The introduction of a new higher rate of stamp duty land tax of 7% on properties sold for more than £2 million will raise over £1 billion in the next five years. At the same time, this Government are also tackling avoidance, as demonstrated in the Bill. The new SDLT enveloping entry charge rate of 15% will deter those seeking to put their high-value property into corporate structures to avoid tax. Also, debt buy-back measures will raise over £500 million from banks that try to avoid paying the tax due, and the introduction of the UK-Switzerland agreement will ensure we can address the tax loss from those who put their money into Swiss banks to evade tax.
There has been extensive scrutiny of this Bill, including about 44 hours in Public Bill Committee. From looking at some of the new clauses tabled for today, I am happy to see that the Opposition continue to stick to their same theme on this Bill, which is to ask for reports, rather than focusing on policies. We have seen 34 Opposition-requested reports over the last 10 weeks, but no real policy alternatives. Yesterday, we were discussing Groucho Marx, and I wonder if the Opposition ever needed to be reminded of the quote:
“The problem with doing nothing is that you never know when you are finished.”
In order to make progress with Government business in good time, we agreed with the Opposition, through the usual channels, to programme parts of this Bill.
It is a delight to see my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) once again in his usual place. As he rightly said yesterday, this legislation is the body, soul and guts of this Budget.
I thank all who participated in Committee and on Report.
Fiona O'Donnell
It is very generous of the Minister to give way. Would he also like to reflect on the comment made by the hon. Member for North East Somerset (Jacob Rees-Mogg) that a good government is one that take tough decisions and stick to them? Does the Minister think that could be said in respect of their handling of this Bill?
Mr Gauke
This Government have taken tough decisions to bring the deficit down, and we are sticking to that plan even though some Opposition Members would rather give up on deficit reduction and continue to borrow in the same unsustainable way that we borrowed up until 2010. This Government remain determined to stick to that plan. I thank the hon. Lady for giving me the opportunity to underline that point.
I thank all those who have been involved in every stage of this Bill, including both Front Benchers and Back Benchers engaged in this matter, not to mention various others. I wish briefly to mention a couple of Treasury officials. First, I congratulate Mr Edward Troup, who, as announced earlier this week, has accepted the post of tax assurance commissioner and second permanent secretary at Her Majesty’s Revenue and Customs. His wealth of experience and enthusiasm will be a great asset for HMRC, but a sad loss to the Treasury. I also thank Jamie Miller, who has been the Bill manager for this Bill, and indeed has served on the past six Bills over the past four years. Despite that, he has remained remarkably cheerful, notwithstanding the provocation that all of us have given on that front.
In conclusion, this is a good Bill that builds a stronger and more balanced economy. It will strengthen the UK, making us more competitive and more ready to face the challenges ahead, and I commend it to the House.
Rachel Reeves (Leeds West) (Lab)
I thank my hon. Friends the Members for Pontypridd (Owen Smith), for Newcastle upon Tyne North (Catherine McKinnell) and for Kilmarnock and Loudoun (Cathy Jamieson) and others for serving on the Public Bill Committee with me over the past several weeks. I also thank our able Chairs for supervising us during that process and the Commons Clerks for their advice and assistance throughout the process in Committee and in the House.
The Bill has been on quite a journey since it was first presented to the House just a few months ago. I fear that the Exchequer Secretary spoke too soon last December when he announced that
“the Government’s more open, predictable and simple approach to tax policy making is working well.”
He said that by publishing tax legislation in draft form first,
“we are giving greater certainty and stability to taxpayers and businesses”.
I do not think that taxpayers and businesses, or indeed Members of this House, realised that the Finance Bill itself was still only a draft when it was published in March. This Finance Bill has been through so many stages of crossing out and rewriting that it would have been easier for the Government to have scrapped it and started again, perhaps with some measures that would have supported jobs and growth.
As we have heard throughout the Committee and Report stages, the Budget has been a total and utter shambles. When we first saw this Bill back in March, it contained provisions to raise VAT on hot food, on static caravans and on improvements to listed buildings.
Mr Reid
What was in the Budget back in March was a consultation exercise on VAT on static caravans and so on. I am glad that after that exercise the Government listened and amended their proposals, but it was a consultation. This Government, unlike the previous one, listen to what people say in consultations.
Rachel Reeves
That is the first time I have heard a Finance Bill being called a consultation—I do not even know where to start.
The Budget in March also included a 3p rise in fuel duty in August and limits on charitable donations. All this was necessary, we were told, to deal with the deficit. Yet the Bill before us, as we reach Third Reading, contains none of those measures. We have had a series of abrupt reversals that, according to one estimate, will cost the Exchequer nearly £700 million.
Opposition Members argued that these measures were misconceived from the start, and that adding to the costs faced by families and small business at this time would make it even harder for our economy to climb out of the recession that this Government have dug us into. But it must be a matter of regret that so much uncertainty and confusion has been created for those affected, doing real damage to businesses, charities, pensioners and families, and that at a time of tight public finances the Government’s financial and fiscal planning seems to be in such disarray, with no one at all clear what the Government’s priorities actually are.
Despite the Government’s belated change of heart on those matters, the Bill remains a deeply flawed, unfair and utterly inadequate response to the problems facing our country today and that is why the Opposition will vote against it this evening. The Bill still offends against the most basic principles of fairness by giving priority to a reckless and irresponsible tax cut worth tens of thousands of pounds for a few thousand millionaires while at the same time asking millions of ordinary people who are already under pressure from rising prices, falling wages and cuts to tax credits and benefits to make further sacrifices and endure further hardship.
The Bill breaks a promise that the Chancellor made in the Budget last year to Britain’s pensioners that their age-related allowance would rise in line with inflation for the rest of this Parliament and instead imposes a stealth tax that will hit 4.5 million people over the age of 65, all of whom live on modest pension savings. The Bill is breaking the principle of universal child benefit and still means that one-earner families will lose thousands of pounds a year while a two-earner family on almost twice as much will keep all their benefit. It is a botched, half-baked measure dreamt up for a party conference speech but the measures are described by the Institute of Chartered Accountants in England and Wales as a “policy disaster” that are
“in danger of becoming a practical disaster when they come into effect”.
We have raised a number of other concerns about the Bill, such as the controlled foreign companies changes and the impact that they will have on developing countries. What is most wrong with the Bill, however, is that it represents a massive missed opportunity to end the recession and get our economy working for ordinary working families, pensioners, businesses and young people. It could have been a Bill that took the tough decisions necessary to ensure that those who could make a fair contribution to deficit reduction did so, so that those hit hardest by the current crisis were not put under even more pressure.
It could have been a Bill that cut VAT, giving immediate relief to hard-pressed families and giving our economy the stimulus it needs to get growth under way again and to make unemployment fall. It could have been a Bill that redirected money wasted on excessive bank bonuses and put those resources to better use, helping young people get back to work and constructing new affordable homes.
Rachel Reeves
The Government are borrowing £150 billion more. That is the cost of the Government’s failed economic policies. The reality is that with more people out of work claiming benefits and fewer people in work paying taxes, Government borrowing is higher and not lower.
Jacob Rees-Mogg (North East Somerset) (Con)
I am grateful to the hon. Lady for giving way, but there is a little problem with her maths. She is accusing Her Majesty’s Government of spending £150 billion more and then wants to spend umpteen billions on top of that on a VAT cut. There is absolutely no sense in that.
Rachel Reeves
We have seen that this Government’s plan has failed, as unemployment remains far too high, with a million young people out of work. It has failed, and the economy is back in recession—we are one of only two countries in the G20 that are in recession—and the Government are borrowing more. In fact, in the first two quarters of this financial year, the Government are borrowing £4 billion more than they were last year. Their plan has failed and it is time to try an alternative that gets the economy moving again and that gets people back to work and paying taxes so that the economy can grow and the deficit can be brought down sustainably.
We have proposed a bank bonus tax because we think that it is right that those people with the broadest shoulders should pay a little more. On the day that Bob Diamond has resigned after taking £100 million of bonuses in just a few years, would it not have been far better tonight if we had supported the bank bonus tax and used that money to fund a programme of youth jobs to get our economy working again?
We could have used the Budget and the Government could have used the Finance Bill properly to accelerate infrastructure investment to help the struggling construction industry and to create much needed jobs in our economy. Instead, we have a Bill that will go down in history as a monument to this Government’s incompetence, complacency and inability to grasp that what the current economic situation demands is a Government who stand up for ordinary working people. The Bill fails on fairness and asks millions to pay more so that millionaires can pay less. It fails to address the real challenges that this country faces—a recession made in Downing street and a Government with no plan to get us out of it.
Stephen Williams (Bristol West) (LD)
Before I turn to the broad sweep of the Bill, I want to mention again clause 180, to which the Minister referred in his winding-up speech in response to my hon. Friend the Member for Argyll and Bute (Mr Reid). Many of us will have been written to by a coalition of charities such as Christian Aid and ActionAid, with which I have been working closely on the effects of the clause. The reason for that concern is felt internationally. The OECD has estimated that developing countries lose three times the amount of aid that they receive from developed countries through tax avoidance in their own countries.
In 2011, the United Nations, the International Monetary Fund, the World Bank and the OECD came together and said that the G20 countries have an obligation to ensure the smooth running of the international tax system. It was therefore appropriate for G20 countries to undertake spill-over analyses of proposed changes to their own tax systems and the possible impact of those changes on the fiscal circumstances of developing countries.
Fiona O'Donnell
Will the hon. Gentleman take this opportunity to explain to the House why, if he is so passionate about the issue, he withdrew his amendment in Committee and failed to vote for ours?
Stephen Williams
If the hon. Lady was so interested, she could have studied the Hansard record of the debate. The purpose of my amendment at that stage of the Bill was to probe the intentions of the Government and to get on the record statements from my hon. Friend the Minister that the Treasury and the Department for International Development were going to work more closely together. The hon. Lady’s party made it clear that it would not support my amendment in order not to hold up that controlled foreign companies change going through. I suggest that she has a word with her Front-Bench team.
I move on to new clause 6, which I tabled. Because of the length of time spent once again discussing the bank bonus levy and Labour’s five-point plan, we did not get to it this evening. Perhaps the hon. Lady might like to think about why that was the case. New clause 6 called for joined-up working between the Treasury and the Department for International Development. You, Mr Deputy Speaker, I and many other hon. Members and Members of the House of Lords were in Committee Room 14 this morning to listen to President Carter, Archbishop Desmond Tutu and former Irish President Mary Robinson, three of the Elders, who were talking about human rights and in particular developing nations. They specifically praised the record of this Government as the first major Government in the world to reach the 0.7% target for overseas aid. I urge my colleagues in Government again to build upon that achievement by making sure that our aid is well spent and raises the capacity of overseas Governments to develop their own tax collection capability so that they are not so dependent on us in the future.
As others wish to speak, I turn to the wider measures in the Bill. For those of us who have been on the entire journey, it has been a long trip from the Budget to Second Reading, to Committee of the whole House, to 18 sittings of the Committee, and to the past two days. Some of the things that were there at the start did not make it all the way through to the end. Maybe somewhere in Cornwall there is someone sitting in a caravan, eating a pasty washed down by sports drinks, filling in a gift aid form, perhaps to a church restoration fund. Such a person ought to be happy that this Government listen.
Some things, to be fair, were consistent all the way through that process. We heard them again this evening from the hon. Member for Leeds West (Rachel Reeves)—Labour’s five-point plan. As a boy, I was brought up to go to Sunday school, so I cannot help but be reminded of the parable of the feeding of the 5,000; they start off with such a small amount and expect it to achieve so many things, but without the benefit of miraculous intervention.
When all these measures are long forgotten, having simply been about tens of millions or hundreds of millions of pounds, it is the really significant measures in the Budget, which involve billions of pounds, that will be remembered in the sweep of history. The most significant of those is the progress towards raising the income tax threshold towards £10,000. My party, the Liberal Democrats, can take particular pleasure in the fact that the Budget and the Finance Act, as the Bill is soon to become, set us off towards another milestone on the route to achieving the £10,000 tax-free threshold. It will already lift 800,000 people out of income tax, and it will do so for 1.1 million people over the coming year and 2 million next year, allowing more people to retain the benefits of their work. We also saw in the Budget the introduction of effective wealth taxes, new rates of stamp duty, a new clampdown on stamp duty avoidance, something the previous Government shirked on many occasions, and new restrictions on reliefs against tax.
When the history of this Government and this Budget is written, it is the rise in the threshold to £10,000 that will be long remembered when all the ephemera we have been dealing with, and which Opposition Members have been so keen to raise over the past 12 weeks, are long forgotten. The raising of the threshold, which will lift people out of taxation, is the big issue that will be remembered for many years to come.
Jim Shannon
I know that on Third Reading we cannot debate the issues again, but I want to ask a quick question on a commitment the Government gave last year during a debate in which recognition of marriage in the tax system was discussed. They gave a commitment to bring in the necessary changes to introduce transferable allowances, the need for which is urgent. I would like to remind the Government of their commitment to recognise marriage in the tax system and press the Minister to respond on the matter. The Prime Minister said:
“I have always supported the idea of supporting marriage through the tax system, specifically supporting the idea of a transferable tax allowance. The idea of a transferable tax allowance is in the coalition agreement.”
I am sure that the Minister will be able to reaffirm that. The Prime Minister continued:
“It’s something we would like to do in this parliament”.
As he is the Prime Minister of the coalition, I am sure we can look forward to a commitment on that at some time in the future.
The Government have made a number of U-turns, or J-turns, as some Members called them—or, as the hon. Member for Brigg and Goole (Andrew Percy) called them, recalibrations. It does not matter what we call them, so long as they are done for the right reasons, and the Government’s U-turns so far have been for the right reasons and we welcome them.
However, perhaps it is now time to have a commitment from the Government on transferable allowances. If the Minister is unable to tell us exactly when the Government will introduce legislation to recognise marriage in the tax system, will he provide clarity on a different but related point? Recognition of marriage in the tax system will require HMRC to make various operational changes, particularly in the IT systems. Can he reassure us that this preparatory work is already under way so that when the Government bring forward legislation to recognise marriage in the tax system there is no further delay? If he cannot do so tonight, will he make it an urgent priority to make a statement to the House setting out the time that will be required to change the IT systems and announce that he has instructed that work to begin in readiness for the introduction of the transferable allowance legislation?
Bill Esterson
When listening to the hon. Member for Bristol West (Stephen Williams), I was reminded of the rather depressing speeches and interventions from some of his Tory colleagues in our previous debates on youth unemployment and the bank bonus tax, who showed very clearly that they do not live in the real world. They have no idea of the impact on young people of the chronic levels of unemployment they now face or the depressing reality that this is a repeat of what happened under the Tories in the ’80s and ’90s.
The shadow Chief Secretary to the Treasury mentioned Bob Diamond’s £100 million in bonuses, which, under the real jobs guarantee scheme, would create 25,000 jobs for young people. I wonder whether Government Members consider that a better use of £100 million in bankers’ bonuses, because I certainly do.
We have already seen new schemes from the Government which are depressingly familiar; they remind me of the youth opportunities programme and its successor, the youth training scheme, in the early ’80s, and of how benefits were withdrawn from young people during those years when there were no jobs. There are no jobs for young people in my constituency or in many parts of the country.
Bill Esterson
I will always give way to a fellow member of the Communities and Local Government Committee.
Heather Wheeler
Why is it that in South Derbyshire the number of apprentices has gone up by 80%, when the hon. Gentleman says that there are no jobs for young people? What is going on in his constituency that is not happening in South Derbyshire?
Bill Esterson
People in the hon. Lady’s part of the world must be incredibly lucky, because it must be the only place in the country where that is the case.
In reality, every Member knows that the youth unemployment figure has gone over the 1 million mark; that is a fact which everyone here accepts.
Bill Esterson
I ask the hon. Gentleman, when he intervenes, to explain why one of this Government’s first acts was to scrap the successful future jobs fund, which the previous Government introduced and Members who are now on the Treasury Bench said they would keep.
Richard Graham
I am very grateful to the hon. Gentleman for giving way, after some careful thought. In answer to his question, in my constituency the biggest difficulty with the future jobs fund was that, first, the placements were not real jobs but national service, because they were from the Government or charities; and, secondly, they had no future. They did not, therefore, meet even the definition of their own title: future jobs fund.
The hon. Gentleman has heard about the situation in South Derbyshire. The situation in Gloucestershire is that the number of apprenticeships has risen massively over the past three years and has continued to go up by 20% over the past year, and that youth unemployment has fallen by 150 every month for the past three months. It is not perfect, but things are getting better.
Bill Esterson
I cannot decide which of those 14 questions to answer, but as a former banker the hon. Gentleman is in a good position to comment on the financial crisis, which was caused by some of his former colleagues. What he says gives no comfort. He mentions national service, and I went back to the ’80s and ’90s, but he has gone back far further than that, to something that really did not solve any problems for young people.
Richard Graham
I shall be very brief, I promise. I have a specific suggestion for the hon. Gentleman—in two questions. First, how many jobs fairs has he organised in his constituency? Secondly, how many apprenticeships have been started in his constituency?
Bill Esterson
I speak to people in my constituency all the time, and they tell me just how hard it is to find jobs. I have employed somebody who was on the future jobs fund, and they have been extremely successful, but people who have been out of work for more than six months, whether they have left school, college or graduated from university, find it almost impossible to get jobs.
The reality is that, in this situation, just as in previous decades under previous Conservative Governments, employers are already turning to people who have just left school or college or just graduated; they are not looking at people who have been out of work for a long period. The depressing reality is that we will see another generation of young people consigned to the scrapheap unless this Government take the action that the Labour party proposes in repeating the bankers’ bonus tax.
Julie Hilling
I wonder whether my hon. Friend, like me, sees a constant stream of young and older people coming to his constituency surgeries desperate for work. Does he agree that the future jobs fund provided something better than having to work in a supermarket for nothing?
Bill Esterson
My hon. Friend gained vast experience of dealing with young people before coming to Parliament, and she has been a strong advocate for them ever since. Her experience is very similar to mine. It is absolutely disgraceful that we have Ministers sitting there laughing at what is happening to young people up and down this country, who cannot get jobs because we have a Government who entered office when the economy was growing strongly—[Hon. Members: “Oh!”]—despite a global economic downturn and a global economic and financial crisis caused by the friends of people like the hon. Member for Gloucester (Richard Graham).
Gordon Birtwistle
Would the hon. Gentleman like to comment on the large number of young people who have come from abroad and now have jobs in the UK?
Bill Esterson
I am not sure what that has to do with what I was talking about. Perhaps the hon. Gentleman can agree with me that what we need is action from this Government—action to help young people find jobs.
The hon. Member for Dover (Charlie Elphicke), who is no longer here, mentioned several times the fact that the banks are not lending and said that that is the problem, but he forgot to say that the reason the banks are not lending is that they have no confidence in this Government—the Government who have pushed us back into a double-dip recession so that we are now one of only two countries in Europe in that position, the other being Italy. That lack of confidence is why banks would rather shore up their own position—and, of course, pay exorbitant bonuses to their top executives. The banks are not lending to the small businesses that need the money to create the jobs and drive the growth that is needed. Unless the banks start to do that, the Government need to step in.
That is why the proposal from Labour is so important. It is why repeating the bankers’ bonus tax would make so much difference to young people and to this country as a whole. But what did we get from this Government? The cut in the 50p tax rate. Three hundred thousand of the wealthiest people in the country will benefit from a tax cut paid for by the rest of us, particularly the poorest and pensioners through the granny tax. That is the reality of the Government’s proposal, which they are pushing through tonight. That is why we should oppose the Bill.
What I expected was an end to the sort of heckling we have heard from Ministers, who clearly enjoy the prospect of young people being out of work. I would like to think that that is not what they really think. I had hoped for a degree of fairness from the Government—perhaps I was being unreasonably optimistic. There is nothing fair in 300,000 of the wealthiest—
Bill Esterson
The hon. Gentleman keeps coming back for more—I am intrigued.
Bill Esterson
If it were true that it helps the poorest people in our society, perhaps the hon. Gentleman would have a point, but it does not help many of the very poorest and it does not help those young people I was talking about who cannot find a job because the Government will not take action and because they cut the future jobs fund when they first came into office.
What we really needed from this Government was a Budget of fairness. Instead, we got that tax cut. What they should be doing is repeating Labour’s bankers’ bonus tax, which raised £3.5 billion—[Interruption.] Government Members do not have to take my word for it; they can take the word of the independent Office for Budget Responsibility, which they themselves set up. They are even questioning their own organisation’s figures. That £3.5 billion was nearly twice as much as the £1.8 billion raised by the bank levy. The bank levy is a start, but the Government could repeat the bank bonus tax and use the money to get young people back to work and the housing industry going. The temporary VAT cut would help small businesses that cannot get loans from the banks.
I know that people want to get home. [Hon. Members: “Hurrah!”] Always happy to oblige. We have had a Budget for the wealthiest in our society. The Bill gives help to the top 300,000 earners, but does nothing for young people or those out of work.
Sheila Gilmore
During the various debates on the Bill, there have been references to the 1980s and the 1970s. Does my hon. Friend agree that there were probably comments like the ones we heard tonight in the 1930s, when people in the south of England said that there was no depression?
Bill Esterson
I thank my hon. Friend for her comments —[Interruption.] If the right hon. Member for New Forest West (Mr Swayne) would like to make an intervention, I will happily take it.
My hon. Friend is absolutely right that we are seeing a repeat of what happened in the ’30s, and we have none of the policies necessary to get us out of this situation.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
Will the hon. Gentleman give way?
Bill Esterson
No, I am not going to take any more interventions; the hon. Gentleman can sit down.
We should be seeing the investment from the bank bonus tax and a temporary cut in VAT. The Bill—[Interruption.]
Mr Deputy Speaker (Mr Nigel Evans)
Order. Please—I cannot hear Mr Esterson speak.
Bill Esterson
The Bill does nothing to help grow the economy or get us out of the problems we face. The House should vote against it.
Question put, That the Bill be now read the Third time.