IMF
Lord Harrington of Watford Excerpts(12 years, 1 month ago)
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Mr Osborne
The parliamentary authorisation is expressed in special drawing rights, and on the exchange rate at the moment the loan is just less than £9 billion.
Richard Harrington (Watford) (Con)
I realise that mind reading is not among my right hon. Friend the Chancellor’s talents, but does he think that as the shadow Chancellor did his gallant marathon yesterday, he suddenly had a Saul-on-the-road-to-Damascus moment and thought, “Ah, the organisation that I have supported for so long, the IMF, now has enough money, so I don’t agree with increasing its resources”, or does my right hon. Friend think, as I do, that the shadow Chancellor’s act is one of blatant, naked political opportunism that should be condemned?
Mr Osborne
I do think it is an act of political opportunism. As I have said, there was complete astonishment at the IMF when I said that the Opposition would probably oppose what I was doing. The people there all know the shadow Chancellor, because he negotiated on behalf of the Treasury as Britain’s representative at the IMF, so they find his decision very difficult to understand.
Finance (No. 4) Bill
Lord Harrington of Watford Excerpts(12 years, 1 month ago)
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Rachel Reeves
That is like suggesting that if inflation was 10% and the Government had to increase pensions by £10 a week to keep pace, pensioners should celebrate and thank them. Of course they will not thank them because the increase in pensions only keeps pace with the rising cost of living. If the Government want to take credit for record high inflation, be our guest.
Rachel Reeves
No. Cuts to vital services such as the NHS and to social care and local transport also hit pensioners hard on top of the increases in VAT and the cuts to their pensions.
Many of the worst cuts are still to come. Analysis of the 2010 spending review showed that, on average, pensioner couples would be hit hard by cuts to services, amounting to £1,275 a year or 6% of their household income, while single pensioners stood to lose services worth £1,300 a year or 11% of their income. As we heard from the Treasury Committee yesterday, many pensioners are also paying a price for the Government’s failure to get the economy moving because the Government are relying on the Bank of England to undertake more quantitative easing to prevent the economy from sinking deeper into recession. That means that annuity rates and returns on pensioners’ savings are lower than they would otherwise be.
Rachel Reeves
I thank my hon. Friend and congratulate him on hosting the National Pensioners Convention in Parliament today. It came to make the very point that my hon. Friend just made, and that pensioners made to us in the Committee Room earlier. Some Government Members would do well to listen to some of the pensioners in their constituencies.
It adds insult to injury for the Prime Minister and other Government Members to tell pensioners that they should be grateful for a rise in the basic state pension that merely matches the rate of inflation. It is not a rise—it simply keeps things level. If Government Members do not know the difference, they should get out into the real world, where the costs of food and fuel are going up and it is getting harder and harder to make ends meet.
Rachel Reeves
The idea that pensioners have been protected from the squeeze on living standards is simply not true. It is divisive and distorts reality when Government Members try to make that point, and conceals the fact that many older people are under genuine pressure. We should do what we can to help them, not see pensioners as a soft target for stealth taxes, as the Chancellor so clearly does.
Rachel Reeves
I thank my hon. Friend for that intervention. All hon. Members know that the average rate of inflation for pensioners is often very high—higher than it is for ordinary families—because they spend more of their income on gas, electricity and food, the rates of inflation for which are going up at a higher rate.
Rachel Reeves
My hon. Friend sticks up for pensioners in her constituency, where, as she says, there are many pressures on their costs and standard of living.
In fact, the only people insulated from the Government’s unfair choices and economic failures are the wealthiest. The richest 10% of people over the age of 65 will be wholly untouched by the tax increases that we are debating. Indeed, those with incomes over £150,000, including, we might note, some members of the Cabinet, will benefit from the cut in the 50p rate of tax that we debated yesterday.
Richard Harrington
I am so extremely grateful to the hon. Lady for giving way—I hope she will forgive my perseverance. Having listened to her argument in some detail, I should like to ask her a question. Principle is very important to her. Does she believe that under-65s should have a lower personal allowance than over-65s as a point of principle?
Rachel Reeves
Winston Churchill was right in 1925 when he introduced that measure. People who are retired have fixed incomes, as a result of which there are more pressures on them and they cannot make up the additional changes. That is why the Opposition will vote against the Government’s change. We do not think it is the right priority or the right thing to do at this time, especially because the money is not being used to help young people to get back to work, to help the poorest pensioners or to help families of children who are struggling with the rise in the cost of living. Instead, the money is being used to give a tax cut of £40,000 to 14,000 millionaires. I can tell the hon. Gentleman what my principle is: we should prioritise ordinary families, ordinary pensioners and young people who are out of work, not those on multi-million pound salaries. That is my principle and those are my priorities. I am sorry that Government Members do not share them.
That is the second reason why the Opposition are opposing the tax increase on millions of modest-income pensioners. As my hon. Friend the Member for Pontypridd (Owen Smith) so eloquently expressed on Monday, the measure is unfair and unnecessary when the Government are spending £3 billion on a tax give-away for the richest 1%. Hon. Members will remember that, originally, the Government said that the 50p tax cut would be paid for by a mansion tax and a crackdown on tax avoidance. However, the cut costs 10 times as much as is raised by the new measure on stamp duty—the Chief Secretary’s sorry substitute for a mansion tax—and more than three times as much as is raised in the Budget by reductions in tax avoidance. In fact, cutting tax avoidance should be part of every Budget anyway, and the money raised by measures to tackle tax avoidance in this Budget is less than the average reductions in tax avoidance achieved by Labour’s Budgets. In addition, we have since discovered that the Government’s definition of tax avoidance includes donations to UNICEF, Macmillan, the Royal National Lifeboat Institution and other charities that do fantastic work in our communities. That the Government cannot see the difference between tax avoidance and giving money to worthwhile causes again shows how out of touch they are.
Meanwhile, the single biggest revenue raiser in the Budget is the measure before us. More than £3 billion over the next five years will be raised from the pockets of pensioners with modest incomes. Where does it all go to? Does it go towards paying down the deficit? No. Does it help young people to get back to work? No. Does it help poorer pensioners? No—they have been hit too by VAT rises and service cuts. Instead, the money, which is being taken from those with pensions of just a few thousand pounds a year, is being spent on a tax cut for people for whom this tax grab would have counted as mere small change.
The Government were said to have been surprised by the anger that the measure has aroused, but that again goes to show how out of touch they are with the reality faced by most people, and how far they have strayed from the values and priorities of the British people. It goes to the heart of the problems that the Government face and the problem with their conception of fairness, and the callous arrogance with which they have abandoned the pretence that we are all in it together.
Age UK responded to the Government’s measures by stating:
“we feel it is disappointing that the Budget offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes who are already being squeezed”.
The chief executive of Saga said:
“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”
The National Pensioners Convention, which I met earlier today, stated:
“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax…whilst those earning £150,000 or more will see their tax bills reduced. This is seen by many as the last straw…Pensioners feel they are being asked to bail out the super rich…and it’s simply not fair.”
Age UK, Saga, and the National Pensioners Convention have hit the nail on the head. It is just a shame that the Chancellor and the Prime Minister are so blinded by the demands of the super-rich that they fail to see it.
Finally, it is worth recognising that the measure is not the only reason why people are so angry. It is not just the blatant unfairness that has offended people, but the way in which the change was announced. Most people believe that our older generation deserve to be treated with respect and dignity, yet this Government and the Chancellor tried to get away with going back on a previous promise by dressing up a tax grab as a “simplification”. Just one year ago, on page 35 of the 2011 Budget Red Book, people were told:
“For the duration of this Parliament…the age related allowance will be over-indexed”
according to
“CPI and will increase by the equivalent of the…RPI”.
What the Chancellor said then was clear and unmistakeable, but that is another broken promise by the Conservatives and their Liberal Democrat friends. The Institute for Fiscal Studies agrees. It says that the Chancellor
“should have avoided dressing up what is clearly a tax increase as merely a simplification”.
In the same letter from Age UK to the Chancellor that I have quoted, it also states:
“We are concerned that you announced the change to age allowances as a way to simplify the tax system and indeed the Budget Report lists the change under…‘Simplification’... rather than under ‘Personal and Property taxes’”.
The Chancellor also attempted to hide behind the Office of Tax Simplification, but its director has told the Treasury that attempts to use its recommendations as a cover for his tax grab are “not 100% accurate”. The relevant report by the Office of Tax Simplification states clearly:
“we would stress…that the Office of Tax Simplification has not reached any conclusions as to the best way forward with age-related allowances, nor have we formulated detailed recommendations”.
It is all too clear why the Chancellor did not bother to wait for the final OTS report: he was not really interested in simplifying taxation for older people. Rather, his single-minded focus and overriding priority was getting his millionaires’ tax break through, and he was willing to fund it by cutting the incomes of pensioners.
In conclusion, we all know what an embarrassment this Budget has become to Government Members. We know how it has shaken their confidence in the strategic genius of the Chancellor and that many of them have heard from constituents who are anxious about the impact that the measure will have and angry about how the Government have treated people who deserve better.
Therefore, today, the Opposition are glad to be giving Government Members an opportunity to make amends and a chance to dissociate themselves with this disreputable raid on the incomes of older people. They have a choice. Do they stand with the millions of people who have worked hard and saved what they can? Or do they stand with the Chancellor and his friend, the Chief Secretary, who see pensioners as a soft touch ripe for a sneaky tax grab? The Opposition know whose side we are on. We are about to find out whose side Government Members are on.
Ben Gummer (Ipswich) (Con)
I am pleased to follow the hon. Member for Leeds West (Rachel Reeves) in this important debate. It is important because it touches on perhaps the greatest challenge facing politicians and representatives in this Chamber. She is a luminary of the new Labour party and one of the stars of her intake, and it is always a pleasure to hear her in the Chamber and on the television. No doubt, at some point, she aspires to high office not only in her party but in government. [Interruption.] There is no punch line. The hon. Lady is no joke. It is important to remember that, at some point, Labour will form a Government. I hope it is not too soon, but it is in the nature of our democracy, and a fine thing, that we swap sides now and again.
Richard Harrington
I was interested to hear my hon. Friend’s comments about Labour’s prospects of forming a Government. I listened to the comments about pensions from the hon. Member for Leeds West (Rachel Reeves). Does he think I will be a pensioner by the time Labour forms another Government?
Ben Gummer
My hon. Friend is full of vigour and will be going a long time, so I hope not.
The key challenge facing us is the extraordinary rate of demographic change in this country. Between now and 11 minutes past 3, the average age at which people are expected to die in this country will increase by 15 minutes. As a consequence, by 2041, the amount we spend on old-age pensions will have increased from about £80 billion now to £250 billion, even with the changes introduced by my right hon. Friend the Chancellor and his colleagues. Even with the reforms that the Government have initiated, we will deliver to our successors in this place—including the shadow Chief Secretary to the Treasury—a formidable challenge, and not only have we not properly faced up to the challenge but we are not talking properly to the public about it.
I can understand why Labour Members have tabled amendments on VAT and other matters—they can make their political points about the balance in the Budget and the Finance Bill with complete justice—but I am seriously disappointed that they have tabled amendments on this issue, because it is the most modest start to trying to deal with what is a really big and fundamental problem for us all.
Richard Harrington
I am trying to follow the hon. Lady’s rationale and that of her colleagues about this change in the pension arrangements. Their argument is that this money is being used to fund wealthy people through the reduction from 50p to 45p, but would it not be just as logical to say that it is being used to fund the big increase in personal allowances, which benefits everybody?
Sheila Gilmore
I think it is important to see this in the context of the cut in the 50p rate.
I am also concerned about some of the attempts today to counterpose and, as usual, level down. It is fascinating. We heard earlier that if we were going to increase the allowances for young people and working people, it was not fair that older people who were already retired should have a higher threshold. Why do the Government always want to level down? Why do they feel, essentially, that they have to pit one group against another rather than saying that the unfairness lies in the high tax levels for working families? Let us not forget that many of those families have not benefited from the rise in the tax threshold because of the changes to tax credits.
Some of the apparently quite small measures that the Government are introducing are illogical. We keep being told that we want people to save and to benefit from savings and work, but yet again this measure undermines that. We have seen that, too, in the way in which working tax credit has been dealt with. We have heard about people with very low working hours who will lose a lot of working tax credit. Working tax credit was frozen, however, and was not increased in line with inflation when benefits were. That totally contradicts the Government’s own policies, because if we want to make work pay rather than benefits, why put up benefits in line with inflation but not working tax credit?
At lot of what is happening is illogical and it is important that we straighten things out and oppose this provision. I shall sit down now so that my hon. Friends can speak.
Finance (No. 4) Bill
Lord Harrington of Watford Excerpts(12 years, 1 month ago)
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Chris Bryant
I do not want a 50p rate to last for ever and I accept that the City of London plays a very important role in the whole UK economy, but I tell the hon. Gentleman that I feel anxious that this country’s economy depends far too much on what happens in London and the south-east. My fear about the way in which this policy has been developed in the past few months is that the Government intend to increase that dependency, rather than undermine it. I know that there are logical arguments to say that we should have different pay rates for public sector jobs in different parts of the country—
Chris Bryant
Just one moment. However, I say to Government Members that if they do that, they will further exacerbate the gap between peripheral parts of the economy—places such as the Rhondda and the Vale of Glamorgan—and the south-east of England and London. That will undermine the very competitiveness that the hon. Member for South West Norfolk is trying to advance.
I also disagree with the move that the Government are making because, politically, it sanctions the process of avoiding paying tax, in which some wealthy people have engaged. I have not been in this place for that long—just for 11 years—but in that time I have heard an awful lot of Chancellors say, “The solution to this is to close a tax loophole.” However many times we try to close these loopholes, wealthy people will still employ accountants to try to minimise how much tax they pay. I would prefer to live in a country where the vast majority of wealthy people said, “You know what, I am a wealthy person and I want to contribute my fair share. However easily I can legally avoid paying tax, I actually want to pay my fair contribution.”
Chris Bryant
If hon. Members bear with me, I will give way. I have already promised to give way to the hon. Member for Watford (Richard Harrington), so I will do so in a moment. I just say that the message coming out of this is, “Frankly Mr Wealthy Person or Mrs Wealthy Person, if you have not got an accountant and you are not trying to minimise how much tax you are paying, you are pretty daft.” That is a bad place for us to be in ethically.
Richard Harrington
I apologise for stopping the hon. Gentleman in mid-flow on two occasions, but I would like to ask him whether he accepts that for people in business, who are creating wealth and—we hope—employing a lot of people and investing money, a very high personal income tax rate is a disincentive to doing that. Does he accept that however public-spirited business people are—in my experience, most people do take the view that he put forward and they are prepared to pay a reasonable rate of tax; they do not try to avoid paying every penny and they want to contribute to society—a high tax rate is a disincentive and would lead to a lot of people saying, “I am just not going to do the extra and employ more people”?
Chris Bryant
Broadly speaking, of course I agree with the hon. Gentleman; a very high tax rate could act as a disincentive to many people and, as the hon. Member for Vale of Glamorgan (Alun Cairns) was intimating, could make this country uncompetitive compared with other countries. However, I just ask two questions in return, the first of which is: what counts as a “very high” tax rate? That is a judgment call; it is about our rate relative to that of others and whether we have the balance right. My second question is: given that, when is the right time to change? I just say to hon. Members that now is not the time, because this country will gird our economic loins and start seeing economic growth only if everybody does genuinely feel we are all in it together. This move undermines that precise point.
Richard Harrington
I am grateful to the hon. Gentleman for giving way and sorry for interrupting him mid-sentence, but in welcoming you, Mr Hood, to the Chair, I should like to ask him this question. Does he believe, as I do, that there are circumstances in which economic beliefs have to take precedence over political ones? Governments have to consider what they believe to be good in the long term for the country, for the economy and for growth, not just what might appear in newspaper headlines.
Sammy Wilson
I do agree, but if the hon. Gentleman had been listening he would have heard that the economic case—that we did not raise as much revenue as we should, that we will raise more revenue than we were doing and that we will improve the competitiveness of the UK economy through this new measure—has not been made. [Interruption.] The hon. Gentleman laughs, but on the basis of the Government’s own publication, the economic case has not been made.
Richard Harrington
To be clear, that is not what I was asking. I accept that the hon. Gentleman does not believe that the current economic policy is the right one, but does he accept my view that in many circumstances Governments have to consider what they believe to be the best economic case over and above the politics of the situation?
Sammy Wilson
That may well be the case. However, if a Government have to make that decision—and, yes, there are occasions when that has to be done— they must first convince people that the economic case is sound, and on the basis of the Government’s own published information, that is not so. Indeed, even the Prime Minister did not seem to know what his own Government’s information said when he was answering Prime Minister’s questions earlier. It cannot be argued that there are times when the economic case is more important than the politics and so the right decision has been made, because the Government have not made a sound economic case.
We have a political context in which the Government are saying to people: “Make sacrifices. If you’re working in the public services, take a pay freeze. If you’re a motorist, you’re going to have to pay more for your petrol. If you’re a pensioner, you must have your tax allowances frozen for some time so that allowances can catch up, with the result that you’re collectively going to lose £1 billion a year. You’re going to have to do this because we’ve got a deficit that we’ve got to address.” I could go through a whole lot of other measures. If people are going to be asked to follow a policy that is designed to reduce the deficit and to accept those impacts on their standard of living, they must understand that the weakest are not being selected for the heaviest burden. This decision is not only economically flawed but politically flawed because it will call into question the Government’s sincerity when they argue that we all have to make sacrifices together.
I have another role in Northern Ireland as Finance Minister. We have frozen wages. We have stopped all bonuses in the public sector where that has been possible and there are no contracts. We have said to people that there will be no recruitment or promotion within the public sector. We have said to people who work in the private sector, “You’re going to have it tougher because we’re going to be spending less on public sector contracts and so on, with the impact that that has on people’s jobs.” We have said about new house building and a whole range of other things, “This can’t be done.” We have said to voluntary groups and community groups, “You’re going to get cuts in your grants because we don’t have the money to do this.”
By and large, I have found that most people accept that when they see that it is evenly spread. People stop me in the street all the time and talk about the impact that it is having on their lives. They say, “We don’t like it, but if we have to put up with it because we know we can’t carry on spending money we don’t have, we’ll do it.” Nothing undermines the argument made by those of us who wish to be responsible about the budget deficit more than the news that the Government are saying to people, “Make sacrifices”, while those who are earning more than they need to live on will get a 20% or a 10% tax cut. That is why the politics of this is all wrong. The economics is not sound and the politics is not sound, and for that reason we will vote against it.
Richard Harrington
Does the Minister agree that the Opposition are missing the point by talking about the amount that was raised by the 50p rate? The real point is the money that was not raised, owing to the disincentive that it created for people to set up businesses and to spend to create jobs and provide the growth that the country needs.
Mr Gauke
My hon. Friend is absolutely right. Let us put away some of the rhetoric that we have heard this afternoon and focus on the disagreement over the previous Government’s assessment of the behavioural impact of the 50p. Their assessment was that about 66% would be lost through behavioural impact. On the basis of the additional evidence that has emerged following the HMRC study, which is consistent with the consensus of the academic studies in this area, the estimate that the OBR has signed off is that the behavioural impact is closer to 83%. No reasonable case can possibly be made that there is no behavioural impact, yet the shadow Chancellor’s consistent argument that this is a £3 billion tax cut for the rich implies a behavioural impact of zero—miles away from any realistic case.
Finance (No. 4) Bill
Lord Harrington of Watford Excerpts(12 years, 1 month ago)
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Richard Harrington (Watford) (Con)
I intend to address my remarks not to the Finance Bill generally, but to the part relating to charities. When I put in to speak, I did not realise that would become one of the great cause célèbres of the Budget debate. I feel I have some experience in this field, having in a previous life spent three years as chairman of fundraising for one of the country’s largest children’s charities. Indeed, it got to the stage where people whom I had known for years would cross to the other side of the street rather than say good morning to me, in the certain knowledge that I would get them for a philanthropic donation. In fact, it was very good experience for speaking in the Chamber, as I seem to have the same effect on people in this place.
There is a serious point to make, which is that I do not think this debate is about charities; rather, I think it is about whether, in a sophisticated society such as ours, where 40%-plus of gross national product is spent by the Government, certain individuals should have the freedom to decide, for whatever reason, quite legally, that they will not pay any tax at all. Although we are talking about charities—that is what the recent debate has been about—society has to make a decision on that question. Is it acceptable, under any circumstances, for people obeying the law and earning money—a lot of money—to say, for what might be a perfectly good reason, “I’m opting out of paying tax on my income,” in this case because they are giving to charity?
I think back to my 20s, when I started work. People had many different options to avoid paying tax. Pensions were uncapped, so self-employed people could go through their whole lives and pay as much as they wanted into pension funds, cutting their taxes on their salaries in exactly the same way. At one time, there were many investment schemes where the amount of money and the conditions attached were almost open-ended, so that people could legitimately avoid paying tax. There are quite a lot of schemes where Governments—not just this coalition Government, but previous Governments—have decided, for whatever reason, to cap the amount of tax deductibility that is allowed. I know that this is not a popular argument, but I would argue that charities, charitable donations and philanthropy should be no exception to the general rule that everybody earning money in a society such as ours should pay some tax.
Richard Harrington
I am delighted that the hon. Gentleman agrees with me. It had to happen sooner or later in my political career, and I am delighted that it should be today.
Most of us in this House and in the country generally regard the charitable sector as part of all the wonderful organisations that we deal with in our constituencies. In Watford we have the Peace Hospice, which is probably one of the most important hospices in the south of England, along with homeless charities and Mencap. Indeed, we have many good charities, so it is difficult to be the person standing here today and even putting the thought in donors’ minds that there may be circumstances where what they want to give cannot be a tax deductible donation. However, people should be aware that the tax aspect is not the predominant reason for philanthropy—that is my experience. If it is, there is something wrong.
John Mann
I totally support the hon. Gentleman and the Chancellor on this specific matter. Does he not find it rather disturbing that one or two individuals are saying that they will refuse to give to charity if the money has come out of their own pocket, rather than being tax deductible?
Richard Harrington
I agree very much with what the hon. Gentleman says, but when it comes to it, that aspect is not such a defining factor as those statements would suggest. We must remember that this country is very good at philanthropy. Among the developed nations, we are the third highest in the world, after the United States and Israel, in terms of the amount per head of GNP that we give to philanthropic organisations. I do not accept that that is just because of the tax breaks; I think it is because of a tradition in this country. Trade unions and working people are involved in it, wealthy people are involved in it, and business people are involved in it, just as Victorian philanthropists were once involved. All in all, we have a huge tradition of philanthropy.
We are very proud of that tradition, but we have to remember that it is very easy to set up a charity. Even today, the forms are simple to fill in. Within 24 hours it is possible to set up a charity, which is then basically a conduit for almost any form of tax-deductible donation. Many charities are very good organisations—I would be the last person to suggest that there was a predominance of fraud, negligence or dishonest behaviour. However, a lot of charities are charitable to some people, who might think the causes are excellent—for example, I could set up a charity to research the history of Watford, which I might think was an excellent cause, and it may well pass the Charity Commissioner’s barriers to becoming a registered charity, albeit not in any dishonest way, because it would be educational or whatever—whereas a lot of other people might not regard such organisations as very charitable at all. It strikes me as very strange that any such organisation can be set up and, provided it has proper directors and an office—it can also be somebody’s house—all of a sudden it can become a charity to which basically any amount of money can be donated. Such a charity could be based abroad, or it could be for a very narrow sector in this country.
It seems strange that there is a perception that giving money to a charity is a great thing almost by definition, but paying tax is not, yet after all, what does tax pay for? It pays for the NHS and education—indeed, it pays the majority of the money going to many organisations that are perceived as being charitable organisations. For example, many years ago, when my late father was chairman of Mencap—it was then called the National Society for Mentally Handicapped Children, although obviously the organisation has developed a lot since then—5% of its money came from Government sources and 95% came from sponsored walks, charitable donations, rich people, poor people, tins outside shops, or whatever it was. Now it is almost the other way round; in fact, many registered charities depend more on money from the taxpayer than on individuals giving. It seems strange that the media can say that if the Chancellor of the Exchequer wants money for the big public pot, some of which may come from philanthropic giving, one thing is automatically good, almost by definition, and one thing is automatically bad.
As we all know, there is a shortage of public funds, and we cannot—or we choose not to—borrow any more money. I shall not get into those arguments, but I think there is a consensus that public expenditure is fairly high by any traditional standards. The Chancellor is taking a lot of different measures to try to fill a gap. The gap was filled by borrowing, and perhaps it will now be filled rather less than it was by that means—that is what we think will happen. Nevertheless, there is always a gap between what a Government such as this —or, in fact, any Government in recent memory—want to spend and what they can raise. Before the public decide who to criticise, it is important that they should remember where the tax saved would have gone, because were those organisations private, it would be perfectly reasonable to regard many of them—be they schools or things like that—as charities. That point should not be forgotten.
It is perfectly reasonable to say that Governments have to think beyond comfortable, cuddly philanthropy, compared with nasty, horrible public expenditure. Governments have to decide on the balance. We have to remember the fundamental point: is it right that people should earn a lot of money and pay no tax at all? There are ways round this problem, and I am sure that the Government will be looking at that in the consultation on the details. Indeed, I would suggest that they might look at “lifelong gifts”—how much money people give in their lives. If someone has a windfall of £1 million, it might be wonderful for them to say for that year, “I’m going to give that £1 million to a charity—I won’t pay any tax, but it’s going to useful causes,” but should they be allowed to do that every year? Should that be their normal way of doing things? Some people may say, “It’s wonderful, because they’re very philanthropic.” Others, if they look it objectively, may say, “Well, each year the state is losing out on £450,000,” or whatever the marginal rate happens to be.
I believe that society has to make a decision on whether people should be able to opt out of the tax system, for whatever reason. I believe strongly in philanthropic giving, in charities and in tradition, but, as with everything else, there has to be a compromise. It is unacceptable that people, irrespective of their income, should be able to choose not to pay tax using a variety of avoidance methods, one of which might be charitable giving.
I found it strange to hear the hon. Member for Leeds West (Rachel Reeves) criticising the proposals on charitable donations. She should consider whether it is right that some multimillionaires pay no tax at all, and that some people should be able to choose what good causes to support. Should people be able to choose to support, say, the National Theatre, the opera and Christian Aid, while choosing not to support the national health service, education and social services? I ask the Opposition to consider that point before being so critical of the Government’s desire to make tax fair for all and to ensure that very wealthy people no longer pay no tax at all.
Budget Resolutions and Economic Situation
Lord Harrington of Watford Excerpts(12 years, 2 months ago)
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Richard Harrington
This has been like the show, “Who Wants To Be A Millionaire?”—a question is asked, there is an advert break, and everybody is waiting for the answer. My quiz show might be called, “Who used to want to be a millionaire but now is a Member of Parliament?” I shall endeavour to continue after the commercial break in the spirit in which I started, by asking hon. Members to consider what growth in the economy means.
As a Johnny-come-lately to professional politics and prior to that having been in business for 30 years in various ways, successfully and, I have to say, unsuccessfully, it seems to me that growth often means something different to politicians, people who work in think-tanks, journalists and people who work in public affairs. For economists it is easy to consider growth as a statistic—0.5%, 0.8% or negative growth, on which Opposition Members and Government Members take different views.
For me, growth is a collective decision by individuals, whether they are business owners, people who want to start a business, or the management of a large company. In a capitalist society—there is a general consensus that the profit motive is what drives private enterprise—business people must make the decision to start or expand their business. Growth in the economy is the collection of such decisions. It is Government’s role and the role of this Budget to facilitate that.
Richard Harrington
Now. Unfortunately that was not the case with the situation we inherited, with a huge deficit and the economy plummeting. Opposition Members should remember what I said—that growth is not a statistic. If we are to get growth, it requires a collective series of decisions by people to expand their businesses and start other businesses.
The predecessors of the current Opposition believed in a different type of economy. They believed in a socialist economy. They believed that Governments, by nationalising businesses or taking investment decisions themselves, could make a fundamental decision, people would do things because they were told to do so by Government and the result would be a growing economy. Society has taken the decision—and this is the general consensus among nearly everyone in the House—that growth will come from private enterprise.
If growth comes from private enterprise, we must accept that that comes from people accepting all the aggravation, mortgaging their houses, setting up businesses, employing people and taking very little money out during much of the growth period of the business. What makes them want to do that is the fact that they want to get rich themselves. I am fine with that. If they pay their taxes—I am certainly against tax avoidance and all the legal and illegal schemes to do that—and if they employ people who pay their taxes, it is right that they should keep the majority of what they earn. I hope that when criticising the reduction from 50% to 45%, hon. Members on both sides of the House will bear that in mind. I believe that that ambition is the core of growth in this country and I commend the Chancellor for progress in this respect.
Gregg McClymont
As usual, my hon. Friend hits on the apposite point. Corporates do have an enormous cash pile, and we have to ask, why are they not investing? It is because they do not think there is anyone to buy their products; it is as simple as that.
Of course, no one is suggesting that this issue is all about one side, because it is not all about stimulating demand at the expense of cutting the deficit, but my and the Opposition’s view is that the Government have got the balance wrong. Confidence will not be restored if there is no growth in the economy.
Richard Harrington
I appreciate the hon. Gentleman giving way, but does he not agree that, actually, it is hard to say which comes first? He says that confidence comes from growth, but I say that growth comes from confidence. I think he has got it the wrong way around.
Gregg McClymont
I thank the hon. Gentleman for his intervention, which will be the last one I take, given the time constraints. The lessons of history are that, unless we can make people feel that they have money in their pockets to spend and to stimulate growth and the economy, the chances are—the Japanese example is a perfect illustration of this—that we are unlikely to recover to pre-trend levels.
At this time of stagnation and austerity, what is the Government’s priority? Is it growth, jobs and helping the hard-pressed squeezed middle? No, it is a tax cut for millionaires. Some 14,000 millionaires will get a tax cut of £40,000 per year. The 300,000 payers of the 50%—[Interruption.]
Banking Commission Report
Lord Harrington of Watford Excerpts(12 years, 5 months ago)
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Mr Osborne
That is an issue that some building societies have raised with us. That is why we say in the report that we are attracted to a leverage ratio—indeed, it is now part of the international regulatory architecture—but that we will consult on exactly how to implement it so that it does not have a perverse impact on building societies, which have served customers well throughout this period.
Richard Harrington (Watford) (Con)
On behalf of my knees, Mr Speaker, I thank you. [Laughter.] I commend the Chancellor on his statement. Will he confirm that had these proposals been implemented before 2007, the RBS-ABN AMRO deal could not have taken place?
Mr Osborne
The RBS-ABN AMRO deal stands out as the moment of greatest folly in banking regulation, not just because—[Interruption.] The shadow Chancellor was the City Minister. He has incredible amnesia about his role, but thankfully we are here to remind him. It is extraordinary that the ABN AMRO deal was given the go-ahead after Northern Rock had failed. People do not appreciate the fact that it happened after that. We were highly critical of the Government’s regulatory system then, and we remain highly critical of the regulatory system that we inherited.
Autumn Statement
Lord Harrington of Watford Excerpts(12 years, 5 months ago)
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Richard Harrington (Watford) (Con)
I commend the Chancellor on his statement, particularly the parts about young people and small businesses, which will be gratefully received in my constituency. I am sure that he shares my concern about the shadow Chancellor’s seeming lack of interest in interest rates and the amount of national debt. With that in mind, will my right hon. Friend confirm that a top priority of the Government is to reduce the £130 million per day that taxpayers in my constituency—and all taxpayers—pay to get the interest on the debt down?
Mr Osborne
Despite the deterioration in the borrowing forecast, the debt interest payments that we are making are £24 billion less than forecast. That is the burden of the debt, and it would be billions more if the shadow Chancellor ever got his hands on the British economy again.
Northern Rock
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Richard Harrington (Watford) (Con)
I, for one, would like to thank the Financial Secretary and his colleagues for this deal, as I believe it is a good deal for the taxpayer and it offers a good future for the employees of Northern Rock. Does the Financial Secretary agree with the shadow Chancellor, who unfortunately is not in his place but who said in 2006 that the tripartite committee provided robust supervision of risks to financial stability?
Mr Hoban
My hon. Friend makes an important point. The reality is that Northern Rock’s problems and ultimate failure as an institution were a consequence of the architectural flaws in the system of tripartite regulation, under which no one body was monitoring, and could respond to, the build-up of an asset price bubble, and no body was able, or prepared, to challenge Northern Rock’s business model which led to its being over-dependent on money borrowed in the wholesale markets. That was the cause of Northern Rock’s problems, and we are putting in place measures that will tackle some of them.
Finance (No. 3) Bill
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Richard Harrington (Watford) (Con)
I came to this Second Reading debate to get an outline of the Government’s case on the Budget and the Finance Bill, as I heard from the Chief Secretary to the Treasury, and because I felt that the Opposition spokesperson, the hon. Member for Wallasey (Ms Eagle), would give us the Opposition’s view. I tried to follow her as best as I could, but we seemed instead to get a lengthy diatribe on any spats that there might have been over the AV referendum, and a repetition of the arguments used after the emergency Budget some several months ago about public spending cuts.
We heard the cliché that the coalition wishes to turn the country back as far as government is concerned into a “small state”, to use her expression. That ignores the fact that the size of the state in public expenditure terms after the five-year programme will be back to that of 2008, which I am sure the then Government would not have described as a “small state”. We heard also great support for the Liberal, Lord John Maynard Keynes, which I found interesting, and the blaming of everything on “a synchronised global recession”.
Those are yesterday’s arguments, however, because we are here to talk about this Budget and this Finance Bill. The debate is about one thing above all others: after the budget deficit is dealt with, the plan for which the Government explained clearly in the emergency Budget, how do we ensure that the economy can expand without the problems of the past? Such problems occur when the economy expands, imports are sucked in without a commensurate export boom and migrants come to work here because we have unemployed people who do not have the necessary skills or, indeed, ability to fill the available jobs. Whether it is because they are unwilling, live in a different part of the country or do not have the necessary skills, that has been a problem. In my constituency, about 2,000 people, including young people aged 18 to 24, are on jobseeker’s allowance, yet companies still have to bring in labour from Poland, because their alternative is to shut the factory and move it abroad. The long-term purpose of the Budget is to deal with such fundamental core problems.
It is not just a question of consumption. The media and, to some extent, the Opposition are obsessed with retail sales numbers, but in the past booming retail sales have led to some of our problems, with imports being sucked in and household debt expanding to fund consumption. Adam Smith, a great hero of Conservative Members who has some support even among Labour Members, said:
“Consumption is the sole end and purpose of all production”.
When he said that, the economy was far less sophisticated than it is today, and he did not mean that retail spending is the be-all and end-all. Indeed, the Office for Budget Responsibility expects British households to account for about a fifth of economic growth this year and about a third next year. There is a lot more to it than just consumption and what is spent in the shops.
The Daily Telegraph said in an editorial just after the Budget:
“The Chancellor bets on business coming to the rescue”.
That is absolutely true. The coalition’s strategy is based entirely on allowing business to produce the necessary jobs, exports and consumption so that the economy can expand, this time on a firm base rather than on the basis of property debt and financial services—although I am pleased to say that financial services, particularly international financial services, are very important for this country. Comments about the banking crisis and bankers’ bonuses tend to push to one side what I would regard as the core argument, which is how we can be competitive as an international financial centre. As the Chief Secretary to the Treasury said, the Government’s strategy is based on allowing us to be one of the best places in the world to do business and to be competitive. That includes the financial sector, but it does not exclude the rebalancing of the economy that is one of the main aspects of the Bill.
The test of the Bill is whether it facilitates real growth given that we have a skills shortage—there is no question about that—and a work force among whom some, particularly in the south of England, where there has been a shortage of labour, regard it as acceptable to be on jobseeker’s allowance for very lengthy periods. Watford is in the south of England, and it has 2,000 unemployed people. Does the Budget bring about a change in this climate to deal with people who lack of skills and those who lack an ability or a desire to get a job? I would argue strongly that it does. Many aspects of the Budget help with that through incentivising people to set up businesses and allowing investors more tax relief through the enterprise investment scheme and other schemes.
The Government’s approach to tax cuts has been the best that they can take in the economic climate that they inherited. The corporation tax reductions are a good start, as is the relief for investment in enterprise. However, tax is a major issue for businesses and individuals. I believe that the 50% tax rate will prove to be a disaster, first, in the money that it brings in—we are waiting for the numbers on that—and, secondly, in providing a disincentive. In one of the first speeches that I heard after the 50% rate was brought in, my right hon. Friend the Member for Wokingham (Mr Redwood) said that he feared that business people will, to use his expression, go on strike—that they will reach a certain age and say, “Why should I work harder if significantly more than half of what I earn is to be paid over to the Government?” My point is not to do with any principles of mine. I am very much in favour of taxation being used as a form of redistribution of wealth and of wealthier people paying a much higher amount than people at the lower end of the income scale, but the unfortunate fact is that it provides a disincentive. It is a free country, and when someone gets to a certain level of income they can decide whether to work a lot harder or to do what the Americans call “going to the beach”. I hope that I am wrong, but I believe that 50% tips the balance in the wrong way.
In the long term, it is in the best interests of this country for us to be able to provide the kind of public services that we all want to provide. Notwithstanding what the hon. Member for Wallasey said, a Conservative-led Government, just as much as a Labour Government, want to provide really good-quality public services. The way to do that in the long run is to reduce the burden of taxation to encourage people to enter new businesses or to work harder in the businesses that they are in. They will not do that in return for progressively higher amounts of tax. I wish it were not the case, but it is human nature and unfortunately we will see it happening.
Business is a bit lumbered, in a way, because there are no direct votes in business. In the past, it has been easy to impose taxes as a burden on business—high business rates, employers’ national insurance and corporation tax are the obvious examples, as well as many other taxes—because there is not the immediate reaction from business that there is from the public. We now have to decide that what is good for business is good for the country, because employees make up businesses. People who demonstrate against companies that pay a small amount of corporation tax forget the billions of pounds paid by the employees in their national insurance and income tax and the VAT on what they spend.
As for skills, the Red Book points out that unfortunately 9.4% of all 16 to 24-year-olds are unemployed and not in education. A few weeks ago, I visited a company in my constituency that makes lenses—Davin Optronics. The business is 100 years old. It has declined a lot in the past 10 years, but it still turns over £4 million and employs 50 people. I was told that its biggest problem is that its skilled work force are getting older. The managing director said, “Young people don’t want to work here. They want to work in Top Shop or TK Maxx, or wherever, but they don’t want to work in a factory.” I am very pleased about the apprenticeship scheme that was introduced in the Chancellor’s Budget. We must somehow make people regard qualifying to do a skilled job as being as important and high-status in society as getting a degree. The 80,000 extra work experience places and the extra apprenticeships are very good news.
Small businesses are different from large businesses, not only in relative size but because many do not have the facilities to set up training schemes to recruit in a systematic manner and to deal with local further education colleges as regards the training side of apprenticeships. I hope that what the Budget and the Bill are doing in relation to finances will be enhanced by the training of people at further education colleges, at Government expense, to find businesses that would never have dreamed of offering apprenticeships and to show them how good such apprenticeships are for those businesses.
Confidence is everything in the economy, and the measures that this Government have taken have done a lot for the confidence of employers. I read in that great oracle The Sunday Telegraph, no less, that according to its City editor business has got £71 billion of cash in reserves; presumably that is worked out by some piece of software that adds up everything on the balance sheets of all the companies at Companies House. That money needs to be invested. In bad times, companies hoard cash because they are frightened of what might happen if sales go down, there are problems with exports, and so on. It is confidence that will make those companies spend that cash in investment. The tax breaks help a lot, but the fundamental benefit of this Finance Bill is that it is employer confidence that will get these jobs provided.
We have to get the economy right, and I think that the Finance Bill passes that test. We have to get the tax regime right, and there have been great improvements on that, although I realise that it has to be done very slowly. We have to get the work force right, which means having skilled workers and incentivising people to work. If we can do all that and incentivise companies that make profits to keep and reinvest them, I think that the economy will enjoy a proper, genuine boom in time, and not one based just on debt or consumer spending. In my view, the Budget and the Bill go a long way towards achieving that.
Amendment of the Law
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Richard Harrington (Watford) (Con)
I assure you, Mr Deputy Speaker, that I will stick to the guidelines you have given. In fact, uniquely both in this House and in life generally, I find that I am speechless after listening to the hon. Member for Kingston upon Hull North (Diana Johnson). There is a holiday attraction somewhere called la-la land. I cannot remember who mentioned it but, obviously, it is nothing to do with Kingston upon Hull North. The picture the hon. Lady painted forgets who has been in power for the last 13 years and who has been responsible for a bloated public sector and a starved private sector, as well as for unemployment and all the other problems that many people, including the Chancellor, have spoken about today.
Matthew Hancock (West Suffolk) (Con)
Is my hon. Friend as confused as I am given that the previous speaker started her speech by saying there are new jobs at Siemens in Hull, thereby showing that manufacturing is expanding under this new Government?
Richard Harrington
My hon. Friend makes a good point, but we heard about Siemens so long ago that it had slipped my mind.
I shall restrict my comments to my experiences in business of dealing with the economy, and the experiences of my constituents and their businesses in Watford. Watford is not dissimilar to Kingston upon Hull. It has significant unemployment and shares all the same problems as many other parts of the country. Notwithstanding the Chancellor’s commendable statement today, the most significant factor in encouraging businesses to invest is the general macro-economic situation. Therefore, the most important aspects of this Budget and the last Budget are the measures for reducing the deficit.
Alison McGovern
The hon. Gentleman is making his speech in his usual eloquent style. Will he comment on why the growth forecasts have been revised downwards?
Richard Harrington
The comments that the hon. Lady somewhat generously applied to my erudition can also be applied to hers. To respond to her question on growth forecasts, we cannot select one figure and say that it makes a fundamental difference, because assessments of growth must be made over a period of time. In my experience, the most important factor for growth is the confidence people have in the economy, and that will definitely come about because of the Government’s sensible approach, as opposed to the reckless irresponsibility of their predecessor.
Angie Bray (Ealing Central and Acton) (Con)
Is it not the case that in almost every recession that this country has had to fight its way out of, there have been choppy times and there has never been a smooth upward trajectory? It is always the case that some quarters are better than others.
Richard Harrington
With the possible exception of the la-la land factor, my hon. Friend is absolutely right.
I want to talk about some specific factors that are important to business people, and therefore important to growth. There is a lot of talk about banks and the availability of capital, and about what the Government should do and what they have not done. Again, I want to comment based on my experiences in the constituency. The bank lending situation is getting better; there is no doubt about that, as the loans are beginning to come through. In Watford alone, under the enterprise finance guarantee loan scheme, 23 companies have already borrowed money amounting to £4 million. That is a comparatively small sample and it reassures me for the future that this scheme, which is to be expanded, does work, and that it does so in a comparatively short period of time.
It is very fortunate for us that interest rates are low, but the decisions made by businesses do not change when fluctuations are minor, such as 1% up or 2% down. Their decisions do change when the situation reaches a ludicrous point; I was once left with a loan on which I was paying 2% over base when the base rate was 15%. Variations such as 1%, 3% or 5% make little difference. Again, what matters is confidence in the economy and confidence that the Chancellor has done the right thing today. So I must encourage what the Government are doing on the fundamentals, because people and businesses will want to borrow money only when there is confidence in the future and confidence that we are doing the right thing.
My next point relates to the availability of skilled staff. Despite the fact that 3.7% of people in Watford—more than 2,000 people—are on jobseeker’s allowance and 700 or 800 young people there are not in education, employment or training, I visit factories and businesses that cannot recruit staff of the right calibre every week. A few weeks ago, I visited Davin Optronics, a manufacturing company that uses skilled labour to make lenses—it deals with complicated stuff. Its fear was that its work force were getting older and younger people did not want to join manufacturing businesses. That is a fundamental issue and we have to change attitudes.
Helen Goodman
How does the hon. Gentleman reconcile that situation with his Government’s policy on tuition fees and the fact that this week children in this country are being told that they cannot take three sciences at GCSE because of the cuts to school budgets?
Richard Harrington
The hon. Lady and I were at university at broadly the same time, so we were very privileged. We could debate tuition fees for hours, but no matter what one’s arguments on that, the new regime has not changed the current situation and we are, thus, dealing with Labour’s policy on tuition fees at the moment. I would be happy to debate tuition fees with her on another occasion, but the real issue is that we have young people and older people who are unemployed, and we have vacancies in jobs that people will not go into. The Government’s efforts on work experience for young people—today’s announcement on that was tremendous—and on expanding the apprenticeships scheme are very important, as are the technical universities. I commend those efforts because we must have a work force who have the right skills. That is not solely about graduates; it is also about people who are leaving school and are doing apprenticeships and further education courses. What the Government are doing to help will change the availability of staff.
Richard Harrington
No, I must make progress.
I normally agree with everything said by my right hon. Friend the Member for Wokingham (Mr Redwood), who is not in his place, and one might think that, as a Conservative Member, I would have an overwhelming interest in bureaucracy, labour laws, red tape and obstacles to business and that dealing with those things would be my top priority. However, important though they are, I think that they are secondary to the macro-economic factors—they are secondary to stability and the feeling of confidence. Germany is a classic example of that, because despite its labour laws and the fact that it has lots of regulation, manufacturing industry works well there. So I am very pleased that we are concentrating on the other issues.
I am keeping in mind your earlier comments, Mr Deputy Speaker, but I just wish to remind hon. Members that Watford is an average kind of constituency and so has 3,000 businesses, with eight being roughly the average number of people employed in them—these are predominantly small businesses. I believe that this Budget will help the long-term confidence for them, despite short-term growth forecasts, and so it is a Budget very much for the small business. It is also a Budget for the larger business, given the corporation tax measures. However, more importantly, it is a Budget for ordinary people and for their prospects. I believe that it is the best Budget that we could have, given the mess that the Government were left.
Mr Deputy Speaker (Mr Nigel Evans)
I thank the hon. Gentleman for his time restraint.