Finance Bill
Andrew George Excerpts(15 years, 8 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read the Third time.
We have enjoyed a lively and wide-ranging debate during the Bill’s progress. I would therefore like to start by thanking all Members who have taken part in the four days of debate on what is a short but significant Bill—despite its brevity, it makes fundamental changes to Britain for the better.
The Bill follows the emergency Budget and puts in place many of the measures that are necessary to strengthen the economy and ensure fiscal discipline. It was a crucial Budget, and this is a crucial Bill because this is the time when we finally get to grips with our deficit. The Bill re-establishes the credibility of the country to the rest of the world. It shows that where tough choices are needed, the Government have the courage to make them, and it provides for a fair and productive society.
The Budget was tough, but it was also fair. It set out a decisive and credible plan to deal with this country’s record deficit and to tackle the other problems that were left behind: a structural deficit £12 billion larger than we had been told; a deficit that was the largest in the G20 and second only to Ireland in the European Union; one in every four pounds of public spending coming from borrowing; an uncompetitive tax environment; and endless complexity and unfairness throughout the tax system. Our plan will pave the way for sustainable private sector-led growth, keep interest rates lower for longer and protect jobs. It is the right approach for the country.
Last week the OECD said in its report on the UK:
“The comprehensive budget announced by the government on 22 June was courageous and appropriate. It was an essential starting point. It signals the commitment to provide the necessary degree of fiscal consolidation over the coming years to bring public finances to a sustainable path, while still supporting the recovery.”
Despite containing only nine substantive clauses, the Bill represents a clear change from the past and a new direction of travel, and it meets the three principles of responsibility, freedom and fairness set out by my right hon. Friend the Chief Secretary on Second Reading.
First, the Bill shows that we are taking responsibility for the problems we inherited, and it follows a Budget more honest, more transparent and more pragmatic than those before it. We have been honest about the scale of the challenge, and we have been honest about the actions needed to take it on. If we are to bring down the deficit without cutting vital public services, raising VAT is unavoidable. We recognise that Members have concerns about that, but for the first time we have published analysis of the distributional impacts of Budget measures. It shows that fairness underpins the tough choices the Government have taken to tackle the deficit.
Andrew George
I am very grateful to the Minister for giving way. He refers to the Budget as being both honest and disciplined. On VAT and the theme of fairness, which he says underpins the Budget, will he ensure that there is an opportunity transparently to review the VAT measurer in clause 3? He has rejected the concept of a sunset clause, but will this be evaluated, as proposed in the Government’s published taxation policy? If it is going to be evaluated, at what stage should it be evaluated and when will the House have an opportunity to analyse it and debate the issue?
Mr Gauke
I am grateful to my hon. Friend for that intervention. As he knows, with this Budget we have set out more distributional analysis than any previous Government have ever done before. On the VAT increase, I say to him that all tax matters are kept under review. He has a fine reputation for finding opportunities to raise particular points in Parliament, and I am sure that he will do so on this matter. I am sure that there will be opportunities for him, and for other hon. and right hon. Members, to raise these matters in future. For the moment we have put in place an increase in the VAT rate. We cannot make any promises to change it, and it would be dangerous for us to do so, given some of the points that we debated in Committee; a promise of a VAT cut in future is likely to result in a deferral of expenditure. However, this is an ongoing debate and I am sure that he will contribute to it fully, just as he has contributed to this debate fully over the past few days.
We believe that this Budget has been demonstrated to be a progressive Budget that deals with the deficit fairly; all sections of society contribute, but the richest pay more than the poorest. I also have to make the point to the House and to my hon. Friend that, of course, we should not look at the VAT increase in isolation, because it is part of a wider package that ensures that the most vulnerable in society are protected. It is also worth making the point that during these days in which we have debated this matter we have learned that support for the VAT increase was more widely spread than we ever realised. With exquisite timing, we learned from Lord Mandelson that the previous Chancellor wanted to raise VAT.
Mr Gauke
We have taken measures to secure the public finances for the longer term, but we have done so by protecting the poorest in society. We have provided a triple guarantee for pensioners and we have finally restored the earnings link that our predecessors did not succeed in restoring in 13 years. In addition, we have taken steps to increase the child tax credit by £150 next year and by £60 in the following year. As a result, levels of child poverty after the Budget will remain unaffected, taking into account all the measures of the next couple of years.
Andrew George
I hate to drag the Minister back to VAT, but he moved on from it very swiftly after the shadow Chief Secretary’s question about the alleged black hole in the finances. Given that there is no, or very little, likelihood of a sunset clause in the Bill or a further evaluation of VAT within this Parliament, will the Minister confirm that each of the zero ratings and exemptions from VAT, as well as the reduced levels of VAT that are available, will be retained and protected? That is very important in order for him to advance his point about the protection for lower-paid people.
Mr Gauke
That is our intention. The Chancellor has made it clear that we have no intention of reconsidering the zero ratings for food or children’s clothes. There are occasional border disputes regarding goods that are zero-rated and those that are fully rated, but on the fundamental question of zero-rating we have made it absolutely clear that we do not intend to revisit those areas. We are also increasing the personal allowance on income tax.
Mary Creagh
We have had a debate on the higher-rated goods, which will be permanently more expensive following the votes that we will have this evening, but I also want to talk about the cuts to Labour’s child trust fund.
Andrew George
I agree with many of the points that the hon. Lady has made on child care issues, but I wish to put something on the record for her. I understand that on children’s car seats, which have been mentioned, the VAT rate is limited to 5%.
Mary Creagh
I thank the hon. Gentleman for that clarification.
I now want to discuss the child trust fund, which is also being cut. When I visited Greenhill school in my constituency to talk about financial education, I asked 10 and 11-year-olds how much money they had saved up in their bank accounts and the answers given by those little 10-year-olds ranged from £50 to £80; that was their life savings. But those children knew that their little brothers and sisters had got £250, and in some cases £500, from the Government through the child trust fund.
Andrew George (St Ives) (LD)
I shall bear your advice in mind, Mr Deputy Speaker, because I know that many right hon. and hon. Members wish to take part in that debate, which is fundamentally important to the vast majority of Members of Parliament. I hope that I have demonstrated such self-restraint in my contributions to the debates on the Finance Bill and will do so again this evening.
It is a pleasure, of course, to follow the hon. Member for Wakefield (Mary Creagh). Her concluding remarks, in which she used fictional characters to make her point, were a piece of fiction that was very entertaining, but that is probably as far as it will go.
The Finance Bill—after all, we are debating the Finance Bill and, perhaps sadly, not the Budget as a whole—has, as the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) made clear, nine clauses. It is rather limited. There will be a further Finance Bill in the autumn and, of course, there were other measures in the Budget—the hon. Lady referred to some of them—including the public spending restrictions of which we will learn more from 20 October onwards. Those issues will no doubt be debated in the future in the House. The debate this evening is narrowly focused and has been defined by Treasury Ministers as they have brought forward a limited number of measures from the Budget.
I wish simply to make a couple of points. Primarily, I want to focus on the issues that I have raised through probing amendments to the Bill—in particular, those to do with VAT, its impact and what alternatives there might have been to the 2.5% rise proposed in clause 3. Before I do so, it is worth while to make it clear for the benefit of the hon. Lady and other Opposition Members that I shall support the Finance Bill on Third Reading, primarily because the Budget as a whole contained a number of measures for which the Liberal Democrats have been campaigning for many years, including the increase in personal allowances, the triple lock on pensions and the introduction of a banking levy. That levy is not at the level at which I should have liked it to have been, as I have made clear in earlier debates, but none the less it is a move in the right direction. I shall be encouraging Ministers to lever it up still further. Other such measures include improvements in child tax credit, protections for lower paid public sector workers and closing tax loopholes such as that on capital gains tax, which was brought in by a Labour Government. Although I want to see that increase still further, with protections—particularly for certain groups that will still use capital gains tax as a means of avoiding paying their rightful tax—it is still a move in the right direction. In view of all those measures, and in spite of my misgivings about other aspects of the Bill, I shall support the Government on Third Reading.
As I have made clear, I had a number of misgivings. The Government are well aware that I refused to support them on the increase in VAT, as the voting record clearly shows. In the conclusion to the Budget, the Chancellor made it clear that the intention was to ensure that
“the burden is fairly shared”
and that the aim was to have
“The richest paying the most and the vulnerable protected”.—[Official Report, 22 June 2010; Vol. 512, c. 180.]
I shall not rehearse all the arguments contained in the Red Book and the Institute for Fiscal Studies’ analysis of the impact of the VAT rise, but, having considered the impact on public services, on charities, on rural dwellers dependent on an old banger to get around because of the inadequacy of public transport and on poor families, I believe that the increase in VAT is regressive. That is clearly not a view held by Ministers, but it is still relevant.
Let me refer to three elements of the impact of the VAT increase on charities. First, a briefing has been supplied to me by Save the Children that states that
“we will pay more in VAT but will not be able to charge VAT on our income as other companies do. This is a real concern.”
Save the Children’s analysis of the figures presented in the Red Book points out that the deciles that are identified in the graphs include the most wealthy decile, which commences at £49,700 per annum. A lot of the very wealthy receive an income of significantly more than that. Save the Children states that
“the graph measures the impact at 2012/13 which doesn’t include the impact of the tax & benefits changes in the Emergency Budget over the whole parliament and probably fails to pick up the changes in the measurement of the uprating (RPI to CPI). The essential point is that although the highest earning households pay more, they still pay proportionately less of their household income on the tax increases than poorer households.”
In previous debates, I have said that the impact on those households with children is clearly regressive according to Save the Children.
Mencap has also provided me with a briefing on the impact that the measure is likely to have on its services for the learning disabled. Mencap provides important services and accommodation for the learning disabled and it estimates that for the 15 months from January 2011 to April 2012—that is, until the end of the next financial year—the cost to it will be £450,000, nearly half a million pounds. That figure includes non-recoverable VAT incurred by its housing subsidiary, Golden Lane Housing, which plays a significant role in Cornwall, where it provides an important service. I received the advice from one of Mencap’s trustees who lives in my constituency, Colin Rogers. His concern as a trustee is that
“as much of Mencap’s income is earned and not donated and since these earnings come from service provision which is also likely to be cut, we are potentially facing a dire financial position which can only be managed by reducing the many services which we subsidise or provide free-of-charge to people with learning disability and their carers. As a rough guide, the 12 month figure of £370,000 would each year pay for around 20 full-time community support workers”.
I hope that the Government will take the impact on charities on board.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Is not the tragedy of the increase in VAT and its effect on charities the fact that we know that it will cost £150 million across the sector, but the human cost of the recession is now feeding into the system and we have not yet reached its peak? The pressure on services is increasing all the time at a time when costs are also increasing.
Andrew George
In the context of the extremely difficult circumstances in the economy, the VAT rise will certainly make things doubly difficult for charities, because where they depend on donation income to make up the shortfall that has been created as a result of the VAT rise, that will be significantly more difficult. A number of charities are already reporting that charitable donations have decreased in recent times and this will make the environment significantly more difficult for them to survive in.
Let me give as a local example Penwith Housing Association. Its chief executive, Andy Moore, has provided me with a briefing regarding the impact that the rise would have on that association and its management of its stock
“due to VAT being chargeable to PHA for all our repair and maintenance expenditure and many other service costs.”
He said that as it does not charge VAT on its rented homes, it has little opportunity to recover the tax. Penwith Housing Association anticipates that the cost to it will be about £182,000 a year. That money will probably have to be found through increasing tenants’ rents, but its tenants are already on low earnings. Given that tenants’ housing benefit might be cut as well, the VAT rise will create significant pressure.
In an intervention on the Exchequer Secretary in his opening remarks, I emphasised a point that I and the hon. Member for Nottingham East (Chris Leslie), who is not in his place, had brought forward in amendments that we had proposed—the possibility of introducing a sunset clause in relation to the VAT increase. That would have chimed with the Government’s claimed tax policy as set out in chapter 3 of the tax policy document that was published alongside the Budget. There was a strong sense that the Government had an opportunity to demonstrate that, as the Budget was an emergency Budget and the VAT rise was therefore an emergency measure, the VAT rise could be time-limited and that there might at least be an opportunity for a sunset clause. Ministers could have accepted the measure then or it could have been introduced on a more acceptable date. There could at least have been a promise of a formal evaluation of the impact of the VAT rise and an opportunity for Parliament properly to scrutinise both the impact of the rise and whether, in the context of the emergency Budget, the fiscal situation had improved by the time the review and evaluation took place. Parliament could then come to a conclusion as to whether it was satisfied with the measure.
I am very disappointed that the Exchequer Secretary has not accepted the proposals either for a sunset clause or for an evaluation of the impact of the VAT rise. I hope that Treasury Ministers will review this issue in due course.
Ms Angela Eagle
I am listening to the hon. Gentleman’s arguments very carefully. Will he tell us whether he is so disappointed that he will now finally consider not going into the Lobbies to support the Budget on Third Reading?
Andrew George
Perhaps the hon. Lady was not listening to my opening remarks when I said that on balance, because there are many measures that I approve of, even though I am disappointed by this particular measure, I will be supporting the Government. This is, of course, a Finance Bill and not the Budget as a whole.
I was reassured, but I seek further reassurance from Treasury Ministers, regarding the promise that the Government will not revisit the current list of zero-rated and 5%-limited VATable products and services and that they certainly have no intention of reducing those lists or in any way cutting the number of VAT-exempt, zero-rated or VAT-limited products and services such as those that we have been debating.
Andrew George
I am just bringing my remarks to a close and I know that a lot of people wish to engage in the Backbench Business Committee debate later, so I hope that the hon. Gentleman will bear with me.
It has been a pleasure to take part in the debates throughout the proceedings of the Finance Bill. I put on record my disappointment regarding the VAT measure in particular and I hope that Treasury Ministers will reflect on the debate and come forward with an evaluation in the months and years ahead.
Mr Umunna
No I will not; I will make some progress first, and I will give way in a bit.
What we are witnessing now is a gross and distorted rewriting of history and repainting of the picture to justify the imposition of a Finance Bill and Budget that are less about economics and all about politics.
On 23 June, in an insightful piece in the Conservative house journal, The Spectator, its political editor described the Chancellor’s Budget thus:
“The mission, as Mr Osborne sees it, is to shrink the public sector and grow the private sector—the classic goal of the modern British centre-right.”
That is what the measures in the Bill and the emergency Budget are all about.
Let us address the Chief Secretary to the Treasury’s claims that the Bill is fair. He said:
“This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden.”—[Official Report, 6 July 2010; Vol. 513, c. 203.]
Just a few weeks ago, a Liberal Democrat leaflet was pushed through thousands of letterboxes in my constituency under the headline, “Clegg delivers on promises”, proclaiming that the Government are reducing the deficit in as fair a way as possible. It made a series of claims in relation to the Bill and the emergency Budget. First, it claimed that there will be “more money for schools”. We have seen now how accurate that claim was: consider the Building Schools for the Future debacle that we have witnessed over the past few weeks.
Secondly, the leaflet claimed that
“tax credits for needy households”
will be
“saved”,
yet the emergency Budget, in fact, freezes child benefit, thus producing a real-terms cut for more than 14,000 in my constituency who receive the payment. Thirdly, it claimed that the emergency Budget included
“a tax cut for low and middle income families by raising tax allowances”.
That neglects to mention that the increased allowances are completely outweighed by the panoply of regressive measures in the Budget—most notably, the unfair VAT rise that will be introduced under clause 3.
During the general election campaign, my Liberal Democrat counterpart and I spoke at an international Save the Children event in my constituency and we both talked of the need to reduce child poverty. Save the Children is running an excellent campaign in opposition to the VAT hike—a hike that the Liberal Democrats now sanction. I note that there is but one Liberal Democrat Member, I think, in the Chamber at present.
Mr Umunna
Okay; three.
The charity said:
“A 20% VAT rate means that the poorest parents will see their VAT bill rise to at least £1,600 a year—affecting already overstretched budgets—and driving some into the arms of loan sharks”,
as my hon. Friend the Member for Wakefield (Mary Creagh) has just mentioned.
The fourth and final claim in the Liberal Democrat leaflet is that they stopped
“Tory plans for a huge Inheritance Tax give-away for the wealthy.”
Even if we accept that claim—I do not—the omission of that giveaway from the Bill pales in comparison with the appallingly regressive overall impact of the Budget, which the Institute for Fiscal Studies and others have looked into. It has calculated that the total effect of the tax rises and spending cuts will cost the average family in the top income decile £1,135 a year. It will cost the average family in the bottom income decile £1,344—£209 more in real terms. The poorest will be 20.5% worse off, and the richest will be 1.6% worse off. So when it comes to social justice, the Government have absolutely nothing to boast about.
The suggestion made in the leaflet that those who are on low incomes should rejoice at the fairness of a Budget that places a larger real-terms burden on the poorest than the richest is an utter disgrace. What is even more disgraceful is the fact that the measures in the Bill and the emergency Budget were a choice. Whatever rewriting of history the coalition indulges in, it cannot distract us from a simple fact: the coalition Government have actively chosen to do this to my community.
Finance Bill
Andrew George Excerpts(15 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John McDonnell
I fully concur, which is why I think that HMRC must apply a lot more resources to tackling quantification. The estimates I have been given range widely from the £40 billion from the Treasury for both avoidance and evasion—its figures do not distinguish between them—to the £25 billion from the TUC solely for tax avoidance, to the higher estimates of anything between £70 billion and £150 billion for both evasion and avoidance. I know that Richard Murphy in particular has focused on evasion, which could account for anything between 40% and 60% of the budget deficit—the structural deficit as well—that this House has recently been debating, and dividing on almost unnecessarily it seems to me.
Andrew George (St Ives) (LD)
I congratulate the hon. Gentleman both on raising the issue and on the manner in which he is doing so. He has made it clear that he has raised it under two Governments. Putting aside the tribal aspects of the debate, I agree that we need to bear down on this issue, and I have asked parliamentary questions on evasion and avoidance that are due for answer today. Does the hon. Gentleman agree that it is to be hoped that once we understand a great deal more about this issue, we will be able to close the loopholes, and address other issues such as where Treasury officials go and work after they leave the Treasury?
John McDonnell
I fully agree.
I have not included any reference to VAT, which is one of the largest areas of tax evasion and avoidance. Interestingly, it appears from the responses we have had over the years from the Treasury that it uses different methodologies to calculate the different forms of evasion and avoidance for particular taxes. I find that extremely confusing.
The amendment has been described as not tribalist. Well, I am a tribalist, but I am trying not to be on this issue; instead, I am being as consensus-seeking as I can be. Even though I come from a class-based politics, I am trying to come at this from a straightforward administrative perspective, asking how we can arrive at a situation in which HMRC will report to the House—to the Chancellor of the Exchequer—on the extent of evasion and avoidance and the measures that are going to be pursued. The reason why I am making a link to the changes in tax measures is that I want there to be a time limit, so that we get a report back to the House; otherwise, this situation will continue year after year.
This issue does relate to that of staffing, which I raised with the previous Government and am raising with this one. I chair the cross-party PCS trade union group in Parliament, which regularly meets PCS members who work in HMRC and who are tax inspectors. It is clear that they have performed an excellent service to our country over the years, and their productivity has been increasing year on year. However, over the past three years job cuts totalling 12,000 within HMRC have been announced that specifically affect staff involved in tax generation. At a time when we are desperately trying to tackle the deficit through measures other than reductions in public expenditure and cuts in public services, we could do that by tackling tax evasion and tax avoidance. However, at the same time, we have the prospect of another 12,000 jobs being lost within HMRC.
Stephen Timms
My hon. Friend is absolutely right. There are some flagrant examples of that, not least in the banking sector. Indeed, some of those examples were very well documented in the excellent series in The Guardian earlier this year. I would particularly welcome an update from the Minister on the progress of the voluntary code of practice for the banks, which could be an effective way of tackling the problem that he is dealing with.
Andrew George
Of course we all agree that we should seek the holy grail of a more simplified tax system, but what assessment did the right hon. Gentleman make of the announcement of 12,000 job cuts in HMRC, which we have discussed, and particularly of the breaking up of the compliance teams that were scrutinising the very areas of tax avoidance and tax evasion that we are now debating?
Stephen Timms
HMRC, for which I was responsible, has a very difficult task on its hands. I was persuaded, and remain convinced, of the case for HMRC being able to discharge its functions a good deal more efficiently in the future, thanks to the use of new systems and to a reorganisation into larger groups. In the past, HMRC was characterised by lots of offices with not very many people working in them. It is now clear that that was not very efficient or effective, and I think that the reorganisation will help. There is no escaping the fact that it has a tough job to do, but I think that it is setting about it in the right way.
The financial crisis since 2008 has led to a big shift in the approach to tax evasion and tax avoidance. Following the crisis, the previous Government made certain that the UK was at the forefront of the drive for change. Internationally, there was recognition that a lack of transparency in the international financial system had presented previously unrecognised but nevertheless significant systemic threats to the global financial architecture, that those threats had to be dealt with and that progress had to be made quickly. In the forum of the G20 and in the aftermath of the credit crunch, good progress was made, but that momentum needs to be maintained. I hope that the Minister will set out for us today how he sees it being maintained.
The Temporary Chair
I have listened very carefully to what the hon. Gentleman has said, but I am afraid that the point of order is of no relevance to the Committee stage of the Finance Bill.
Andrew George
I want to speak in support of amendment 50, which is tabled in my name and those of my colleagues. I congratulate the hon. Member for Nottingham East (Chris Leslie) on the manner in which he proposed his amendment. The broad thrust of the case that he seeks to probe and possibly to press to a vote later on—we do not know—is, I think, worthy of being probed. The House should obtain a great deal more information on the issue before we make a decision.
I have asked a large number of parliamentary questions on the subject and, more particularly, on the banking levy and the basis on which assessments have been made to set that proposed levy at the level at which it will be set. It is rather frustrating for many of us who wish to engage in the debate on corporation tax and to cross-reference it with the banking levy that both measures are not contained in the Bill. I understand, of course, that there will be a consultation on the banking levy before its implementation in January, and I am sure that the Minister will say that they could not both be contained in the Bill because it was proposed that the arrangements would be undertaken in such a manner. However, leaving aside the politics of the issue, the broad thrust of the argument, on which I understood that all parties were agreed, is that when we came to set the first Budget after the general election, those who dropped this country in it and caused the public finances to be in such a serious state would do most to help us to get out of it and to help to restore our public finances. We should be looking to those sectors that are most culpable to make the greatest contribution.
The Chancellor of the Exchequer was absolutely right to conclude that what we should seek to achieve in the Budget is that those who can afford it most should contribute most, with the vulnerable protected. Although I do not want to return to a Second Reading-type debate and to relate this measure to all the other measures and to the public spending re-profiling or cuts that are due in the autumn, on which we are to get more detail, that is the context in which this issue has to be considered.
Amendment 50 is remarkably similar to amendment 34, tabled by the right hon. Member for East Ham (Stephen Timms). I tabled amendment 50 because we need to probe and fully understand the likely impact of the banking levy and the corporation tax cut on the banking sector. We need a better assessment of that. It was interesting that the hon. Member for Nottingham East, in response to proper and reasonable questions about the relationship between the impact of the bank levy, as opposed to that of the corporation tax cut, on the banking sector was unable to give a quantifiable answer. That is because the Treasury do not provide one. In the responses to the questions that I have asked on the issue, that relationship has not been clear. That is why it would be better for us to say honestly that if we are properly going to come to a measured conclusion, it would be far better to have the best possible estimates of the likely impact of both measures beforehand, so that we can measure one against the other and make a proper, balanced and reasonable assessment of the impact at the end of the process.
I do not wish to delve into the party politics of what people said and did not say prior to the election, although that adds to the excitement and interest in this Chamber, but the Business Secretary, my right hon. Friend the Member for Twickenham (Vince Cable), was right in predicting a lot of what needed to happen and in encouraging the then Government to take the action that they ultimately took on Northern Rock and in relation to other interventions. The hon. Gentleman was wrong to place the Conservatives and Liberal Democrats together in the previous Parliament as taking the same line on the issue. As a candidate in the last general election, I was particularly keen that we went into it seeking to ensure that the banking sector made a significant contribution to restoring the public finances. I was looking forward to that, and I was very pleased to see the banking levy in the Budget, along with a large number of other measures, such as raising personal allowance and the pension guarantee; the Liberal Democrats were pleased to see those. The hon. Gentleman is right, however, that one thing that came out the day after the Budget was the sense that the banking sector was breathing a sigh of relief.
Clive Efford
I apologise to the hon. Gentleman in advance for going back to what was said during the general election, but it is important in this context. The Liberal Democrats said that they were in favour of a banking levy, as he has just said, but they went further and said that it would be in addition to corporation tax. What we are debating is corporation tax that compensates the banks for the levy, cancelling it out. How can he possibly defend that position?
Andrew George
I am a free-ranging Liberal Democrat Back Bencher and I am quite clear that I want to probe this issue. I tabled my amendment because I want to ensure that we have the facts before we make what I hope will be a balanced decision on this important issue. If the hon. Gentleman does not mind, I will sidestep the tribal arguments.
Geraint Davies (Swansea West) (Lab/Co-op)
The hon. Gentleman will be aware that there is a banking levy in the United States. Does he agree that if the banking levy in Britain is offset by the corporation tax reduction, our marketplace will reward bad bankers and encourage them to migrate here? At a time when the rhetoric is about creating a non-financial economy and building new strengths into the economy, we will be encouraging bad practice by rewarding bankers during the horrendous aftermath of what we have all had to witness, the costs of which are being paid by people across the country.
Andrew George
The hon. Gentleman’s point is, in a way, a development of an argument that was made earlier, when he was not here, regarding the contrast between the proposed level of the banking levy in the UK and that in the US. That potential osmosis of banking activity and investment may or may not happen. The hon. Member for South Northamptonshire (Andrea Leadsom) argued that having differential rates of corporation tax would be anti-competitive, but, at the same time, Members on the Government Benches are arguing for differential rates in the sense that the banking levy differentiates between the banking sector and all other sectors. One of the purposes of my amendment is to probe the issue further.
Ian Lucas
I commend the hon. Gentleman on tabling the amendment, but will he clarify the reference to
“all other sectors to which corporation tax applies”?
Does he think it would be helpful if that assessment took into account, for example, the effect of the reduction in capital allowances when making judgments about whether that is a wise course to take?
Andrew George
I am not sure that I am qualified to advise, but I am sure that the hon. Gentleman is right. If the Treasury could be encouraged to adopt this approach, I hope that it would at least ensure that it was sufficiently free-ranging to deal with any of the consequential behavioural activities that might arise as a result of such proposals.
Mr Kevan Jones
Although we are rewarding the banking sector, the proposals on annual investment allowances, which are cut in the Budget from £100,000 to £25,000, will directly affect many small and medium-sized businesses. Surely it is wrong that we are rewarding the people who got us into this mess in the first place, but penalising small businesses, which are getting a double whammy, because they are penalised by the lack of lending from the very institutions that we are rewarding.
Andrew George
Opposition spokesmen and the Treasury Ministers will have heard that intervention, which further embellishes the point that the hon. Gentleman wishes to make. I have no further comments to add, and I look forward to the Minister’s response.
Mr Kevan Jones
It is a pleasure to follow the hon. Member for St Ives (Andrew George), who has become a rather lonely figure on the Government Benches. Last week, he was the only Liberal Democrat who was not defending the indefensible, for which I pay him credit. At least he is prepared to come to the Chamber and argue against the measures in the Budget that will affect his very poor community in Cornwall, unlike some of his colleagues, who make comments in the press, but are absent from debates on the Finance Bill. I hope that on at least one or two occasions he will join us in the Lobby to stop the effects of the measure on his constituents and mine, although I know that he feels uncomfortable about voting against the coalition.
In 2008, in the run-up to the general election, bashing the bankers was something that everyone wanted to do. It is strange that we now have a Finance Bill that will reward them. There has been a change in the past few months from the stance that the Deputy Prime Minister adopted on 20 April, when he described bankers as “reckless and greedy” and holding
“a gun to the head”
of the country.
I support the amendment tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) and by my right hon. Friend the Member for East Ham (Stephen Timms), and the amendment tabled by the hon. Member for St Ives. I wish to deal with the effect on other sectors, which that amendment raises. We have discussed the banking sector a great deal, but it is important to look at other sectors, too. There has been a feeding frenzy, which suggested more or less that the previous Government got things wrong, and that we should be penalising the banking sector. That view was reinforced by the Prime Minister himself who, when he was in opposition, said on Channel 4 in December 2008 that
“more senior bankers should be sent to prison.”
On another occasion, he should that they should do voluntary work rather than earn large bonuses in the City. The Conservative party went very quiet at the election, possibly because, as the Deputy Prime Minister said—and I agree with him—it is
“completely in hock to the City”.
We have seen that position defended tonight.
A number of banks have clearly made huge profits. Barclays, as has been mentioned, had a 92% increase in profits in 2009, and stand at £11.6 billion. The Royal Bank of Scotland—remember that?—paid its investment bankers £1.3 billion in bonuses, despite making just £1 billion in profit. Lloyds has made a profit of up to £1 billion. The proposals in the Finance Bill to reduce corporation tax rewards the banks for the mess they got us into, and do not acknowledge the fact that the individuals in question have been carrying on regardless, even though, as several hon. Members have said, the people who have suffered will have their services cut. The members of the public who are the victims are somehow to blame for the financial mess that we are in.
I do not understand how—well, I can, because they are called Conservatives—in the lead-up to the election, people can speak tough words against the banking sector, but one of the first things they do is to reduce corporation tax and reward the individuals who got us into the mess in the first place. Those same Conservatives—this was raised by my hon. Friend the Member for Nottingham East—opposed all the measures that we took not only to ensure that the banking sector did not collapse but to protect the British economy.
Stephen Timms
I am not sure about the figure of £700 million. I hope that the hon. Gentleman is not telling us that the reduction in corporation tax will decrease that tax take by £700 million. That is incorrect—perhaps he was citing a partial figure. However, that is why we need a report. I would genuinely like to know the impact specifically on the banking sector of a four percentage point reduction—it was not long ago that the banks accounted for a quarter of all the corporation tax receipts that the Exchequer collected—compared with the £2 billion cost of the levy.
Andrew George
The Red Book costings on page 19, in table 3 refer to the yield from the bank levy across fiscal years. In 2011-12, the figure is £1.15 billion, and in 2012-13, it is £2.32 billion. It is important to clarify that for the record.
Stephen Timms
I am grateful for that clarification. However, my hon. Friend the Member for Nottingham East described the background, pointing out the rather surprising fact that, after the tough talk, banking shares rose. He cited some of the analysts and mentioned the note from BNP Paribas, entitled
“UK Bank Levy: Bark Worse Than Its Bite?”
The note explained the reasons for that. It states:
“As things turned out for all the pre-election vitriol aimed at the UK banking system, the impact of today’s measures appears materially lighter than expected.”
The ratings agency Fitch said the levy would have “no impact” on the ratings of any UK bank. FT.com reported ideas being developed by the Swiss bank, UBS, to reduce the impact of the levy through some careful so-called “balance sheet management.” My hon. Friend the Member for North Durham pointed out that the banking levy is supposed to be based on bank balance sheets, so I suppose that it is no surprise that organisations such as UBS are thinking about what they can do to manage to balance sheets in such a way as to reduce the impact of the levy. That takes us back to our earlier debate on avoidance and evasion, and why legislation often turns out to be more complex than people originally intend: it has to address such behaviour.
My hon. Friend the Member for Nottingham East also rightly made the point that several banking analysts were quoted after the Budget as saying that the cut in corporation tax from 28% to 24% would “negate” the impact of the levy on bank profitability. We need to know the truth of the matter, and that is why the amendment calls for a report. It is certain that the amount payable under the levy will be offset—at least in part and possibly wholly—for banks making a profit by the reduction in corporation tax in the next few years. It is entirely plausible for the amount due under the levy to be more than offset for some banks—possibly for all banks—by the reduction in corporation tax under the clause, together with reductions over the next few years.
The Chancellor said in his Budget speech that the contribution under the new levy would “far outweigh” the benefit from corporation tax reduction, but to put it kindly, it is by no means clear that that will be the case. I would not favour a different, higher rate of corporation tax for the banks. That would raise several difficulties, but given that the Chancellor has made clear his view that the banks should make a larger contribution in the light of what has happened, that the increase in the tax they bear should “far” outweigh the reductions they enjoy—of which the clause outlines the first—I hope that the Exchequer Secretary will agree that a report along the lines suggested in the amendment, and in the strikingly similar amendment that the hon. Member for St Ives tabled, would be a valuable contribution to transparency and to understanding the impact of the Budget measures. I also hope that the Minister sets out as much information as possible to illuminate the impact of the corporation tax cut on the banks in comparison with the bank levy.
The nub of the issue is this: can the Minister substantiate the Chancellor’s claim that the impact of the bank levy will “far outweigh” the impact of lower corporation tax? If the Minister is unable to accept amendment 34, I should like to press it to a Division.
Andrew George
The corollary to the corporation tax cut is the banking levy, but although I respect the information that my hon. Friend has given in his reply so far, he has not yet addressed himself to the criteria for the setting of the banking levy and why it has been set at the proposed level—[Interruption.]
The Temporary Chair (Mr Benton)
Order. The background noise is a little high. Will Members please keep it down?
John McDonnell
Following on from my right hon. Friend’s exposition, I want to speak briefly to amendment 10, which stands in my name. Amendment 10 simply calls for a report on the implications of aligning the rates of capital gains tax with those of income tax. I drafted amendments that were not in order, which calls into question the ability of Back Benchers to amend the Finance Bill and is perhaps something that can be discussed at a later date.
When capital gains tax was introduced in 1965, it was an attempt to get some equivalence between income tax and taxation on gains through capital investments. There has been reform since then. It is interesting that, under Conservative Chancellors, capital gains tax was aligned with income tax rates. Then, in the late 1990s, the Labour Government introduced the tapers and the link to the time that an asset was held. In 2007, there was further need for reform when it was discovered that executives of hedge funds were determining carried interest—their bonuses, that is—as part of their capital gains tax relief. As a result, they were effectively paying 10% tax on their income—less than their own cleaners. All parties in the House acknowledged that that was a scandal and recognised the need for reform.
It is accepted that there is an element of compromise between, on the one hand, an equitable tax relationship between income tax and capital gains tax, and, on the other, an arrangement that will support genuine entrepreneurs and business. There has always been an element of fudge, but there was a view that we would try to address the issue in this Finance Bill, whoever was in Government. The previous Government were considering capital gains tax reform, and that was widely supported by the Institute for Fiscal Studies and the Institute of Chartered Accountants. Indeed, Lord Lawson himself made statements about the need for a more equitable relationship between the two, in order to tackle tax avoidance. Such reform was also included in the Liberal Democrats’ manifesto. I do not want to bait the Lib Dems tonight. This is too important an issue for that, although it can be quite entertaining.
In an interview with Andrew Marr, the Prime Minister said:
“I think everyone recognises there is a problem. When you have a capital gains tax rate of 18% and a top rate of income tax at 50%, you’ll find people finding all sorts of ways to treat income as capital gains.”
He went on to say that the new Government would look at taking a different route to help what he described as the fairness agenda. The problem is exacerbated by the 50% increase. With income tax at 50%, even the 28% rate of capital gains tax proposed in the Bill will still leave a 22% differential to encourage further tax avoidance as people designate their income as capital gains.
My amendment simply asks for a report to be produced that will examine afresh the implications of the alignment between income tax and capital gains tax. I believe that we shall return to this issue in further Finance Bills, because I do not believe that this compromise will hold, or that it will be seen to be equitable or fair. I believe that tax avoidance will continue, certainly among the highest paid, who will re-determine their income as capital gains in order to pay the lower rate of 28%. I accept that an increase of 10% is significant, but it is not significant enough to implement the fairness agenda that the incoming Government have proposed.
Andrew George
It is a pleasure to follow the hon. Member for Hayes and Harlington (John McDonnell). I am pleased that, unlike the right hon. Member for East Ham (Stephen Timms), he chose not to bait the Liberal Democrats tonight. At this late hour, it would perhaps not be a good idea to respond to the rather combative approach taken by the right hon. Gentleman in his opening remarks. I shall merely point out that the Labour party, which claims to be the champion of the working poor, created a capital gains tax environment in which the cleaners of wealthy bankers were paying a higher marginal rate of tax than the bankers themselves. That is no doubt a cause of great embarrassment to the previous Government, so I do not think the Liberal Democrats need take any lectures from Labour Members on this issue.
Reducing the capital gains tax rate from 40% to 18% had many unintended consequences for communities across the country, including my own, which sucked in a lot more second home ownership. The more advantageous tax environment enabled more people to purchase second homes, and this made the housing environment, particularly for affordable homes, a great deal worse in many parts of the country. It is worth responding to the right hon. Gentleman: if he wishes to bait, we can certainly fight back. As for the questions he asked, most were directed at those on the Treasury Bench. The intention behind the starred amendments—I cannot refer to those standing in my name—was to probe the Government about the purpose of and background to the decision to set the capital gains tax rate at 28%.
The Exchequer Secretary has done an excellent job of responding to the issues raised this evening. I previously put questions to him—about his Department’s economic modelling to determine the level of capital gains tax; what research or impact assessments he undertook before deciding to roll forward with the capital gains tax proposals; and the Department’s estimates of the revenue accruing to the Exchequer from capital gains tax if the income tax rates for those with an income above the higher rate threshold were set at a range of different levels—which he answered on 7 July. Unfortunately, I was not given the requisite information to make an adequate assessment of the likely impact of this particular measure in contrast to the setting of capital gains tax at another threshold.
I put questions to my right hon. Friend the Business Secretary in the Budget debate—on 1 July, I believe, but I might have to check that. I asked him why the capital gains tax rate had been set at 28% and not a higher rate. The answer was that there is a law of diminishing returns. By the time that level is reached, the return to the Treasury would be significantly less, making it not worthwhile to take it beyond that particular level. Unfortunately, we do not have the statistical or factual basis on which to make that assessment.
Partly in response to the right hon. Member for East Ham, who commented on the Liberal Democrat manifesto commitments in the context of the level at which the threshold should be set, we have to address ourselves to the lack of evidence and information that the previous Government provided. The information on which many policy decisions were taken might well have been unreliable Treasury estimates at the time.
In conclusion, I urge the Exchequer Secretary to provide a little more information in response to my previous questions, which I think would help us all to understand rather better why the capital gains tax rate has been set at 28% and not at some other level. That would help to reassure us that it is not going to attract those who would have had to pay income tax at a much higher level if they had not simply transferred their assets into capital.
Mr Gauke
Clause 2 and schedule 1 introduce the changes to capital gains tax from 23 June 2010, as we have heard. The coalition agreement involved a commitment by the Government to align capital gains tax to levels similar or close to those applied to income, while providing generous exemptions for entrepreneurial business activity.
Within the Treasury team, we looked at various options as to how best to achieve that. The conclusion we reached, however, was that contained in the schedule. For individuals, the rate remains 18% when their income and gains for the tax year do not exceed their income tax basic rate band. Above that level, the rate is increased to 28%. Therefore, someone who is already paying income tax at the 40% or 50% rates will pay 28% on all their gains. As was mentioned in an earlier debate, the 28% rate applies to trustees and personal representatives, who will pay capital gains tax at that rate on all their gains. That ensures that trusts are not used to shelter personal gains from the higher rate of capital gains tax.
Mr Gauke
I believe that the overall effects for this period balance out, but I shall write to the right hon. Gentleman to confirm that.
The right hon. Gentleman asked about the self-assessment return and guidance notes to help people to work out their final liability. For the tax year 2010-11, HMRC has worked to automate more of the online self-assessment processes in order to help customers with the changes. The software will be available for customers to use from 6 April 2011. The improvements will be conveyed to third-party software developers at the usual time, enabling them to modify their products in good time. Full guidance will be available in the self-assessment notes on HMRC’s website and through its helplines.
Andrew George
May I return the Exchequer Secretary to the subject of the “composition of income” behavioural impact that he described earlier? He referred to the tax yield in forthcoming years. Is the tax yield for every reduction of one percentage point assumed as a continuing line beyond the 28%? What happens to the behavioural change after that?
Mr Gauke
The assumption is that there is an ongoing gain—that we will gain more in income tax as a consequence of the rise in the CGT rate.
The reason why there is no yield this year has suddenly dawned on me. We do not get the receipts for capital gains tax through self-assessment immediately; it is only in future that CGT will be paid through the self-assessment process.
Finance Bill
Andrew George Excerpts(15 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Stewart Hosie
As my hon. Friend says, it will mean £26 million extra on the bill to the NHS in Scotland alone. We can easily add up the figures for all the public bodies and find out what the real cost of the VAT rise will be area by area, but we know that it adds up to £13 billion in total. It makes up more than a quarter of the additional £40 billion of fiscal tightening that the Government wish to see in 2014-15. That is £40 billion in that single year, on top of the cuts and tax increases inherited from the Labour party that they intend to keep. There is a huge problem with the VAT component of this Finance Bill.
Andrew George (St Ives) (LD)
By and large, I must commend the hon. Gentleman for a constructive contribution to the debate—we have not had many so far. Given the amendment that I tabled last Monday about impact assessments on VAT, what alternative would he recommend to fill the hole that would be left by not increasing VAT by 2.5%, or does he not recommend an alternative?
Stewart Hosie
I suffer from the advantage of tabling many new clauses and new schedules to the Fiscal Responsibility Bill to establish a medium-term fiscal consolidation precisely to avoid the slash-and-burn approach of a massive hike in the most regressive form of tax. Instead of the VAT increase, I would not tackle the deficit and debt over a fixed term—certainly not a short fixed term such as the Government propose—but do it in the medium term, not least to benefit from the £50 billion of medium-term savings from cancelling and not replacing Trident. The Liberals appeared to be in favour of that midway through the election campaign, but were not towards the end, when it looked as if their leader would be in a position of some influence and power. I will stop there because the Liberals have had a hard enough time, but I will return to the subject shortly.
It is not simply what is in the Bill that causes problems, but what is not in it, and the missed opportunities that that represents. The reasoned amendment outlines those. For example, the Bill could have taken its lead from the second and final report of the Holtham commission—the Independent Commission on Funding and Finance for Wales—which repeated its call for an immediate “Barnett floor” on departmental expenditure limit payments to Wales. My hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned that earlier. That came a year after the commission’s first report recommended that such a floor, which would prevent further convergence between Wales and the England average, should be a multiple of 114% spending in Wales for every 100% in England. The Scottish National party and Plaid Cymru were delighted that the Chief Secretary confirmed earlier that there would be no further convergence in funding for Wales in the next few years at least. I am sure that my hon. Friends in Plaid Cymru will hold the Government to that.
The Bill also missed an opportunity to deliver real progress on intergovernmental relations with Scotland. The Government could have ensured the release of the fossil fuel levy—nearly £200 million sitting in a bank account—without a corresponding cut to the Scottish block. Such a move would have been welcomed, and have provided a much-needed boost to the Scottish Government’s attempts to secure economic recovery and kick-start jobs in the green economy. Better still, the Government could have moved to a position of full fiscal responsibility for Scotland, so that Scotland would make all its tax-and-spend decisions and find its own solutions to ensure that we did not enter another recession.
There was also an opportunity to deliver a fuel duty regulator—a fuel duty stabiliser—and fair play on fuel, not least for the haulage sector. Instead, the Chancellor plans to go ahead with Labour’s inflationary package of three fuel duty increases in the next year. The Road Haulage Association’s chief executive said that that
“will simply further widen the gap between UK diesel duty and that of our EU competitors.”
As my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil) said several times, the Government have missed an opportunity for a fuel duty derogation now for remote and rural areas. I hope that that idea has not been kicked into the long grass, never to be seen again, and that the Liberals in the Government might find a little steel before they are ground down completely, and deliver something beneficial to remote and rural areas throughout the UK.
Andrew George (St Ives) (LD)
It is a pleasure to follow the hon. Member for North Durham (Mr Jones). If I pick my way through the hyperbole and the political points that he sought to make, I find that there were a number of very telling and important facts and figures. Indeed, it was a thoughtful and constructive contribution in many ways, if a rather encyclopaedic one. When he opened his remarks, he described it as his first speech—his maiden speech—since the general election, but next time he is about to speak, I must remind myself not to be the next speaker.
This debate about the Finance Bill—and I accept your strictures, Mr Speaker—can probably be characterised by the to-ing and fro-ing between Members on the Treasury Bench and Opposition Members. Members on the Treasury Bench have characterised the emergency Budget and the Finance Bill that underlies it as an unavoidable and regrettable necessity, given the public finances and the circumstances in which the country finds itself. On the other hand, Opposition Members have predictably and quite understandably characterised it as entirely ideologically driven and an example of political opportunism.
In my brief contribution, I want to try to acknowledge that, first, as Members on the Treasury Bench have said, we are all in this together. The nature of today’s debate is that we are all in a political mire of tribal point-scoring and translucent evidence, and that has not shown the House or this debate in a good light. We should be trying to get to the nub of the evidence that drives us towards the correct answers; we, as politicians across the political spectrum, are seeking to assist the country. People witnessing the debate will not have been enlightened by many of the contributions because of the tribalism into which the House has fallen. [Interruption.] Hon. Members may well not like that comment.
Having said all that, I should add that there were four beacons of hope in the maiden speeches this evening, made by the hon. Member for Scunthorpe (Nic Dakin) and my hon. Friends the Members for North East Cambridgeshire (Stephen Barclay), for Ipswich (Ben Gummer) and for Weaver Vale (Graham Evans).
I suppose that I have been implying that I oppose any ideologically driven contribution, but I actually want to make one myself.
Andrew George
May I make this point about the ideologically driven element of the debate? I strongly endorse an element of it. There is a welcome on the Government Benches, and even on the Opposition Benches, for elements of the Finance Bill and the Budget that preceded it. I am thinking of the rise and ultimately the further ratcheting up of the personal tax allowance, of the triple lock that will ensure that pensioners get a decent annual pension increase and of the closing of the tax loophole that has existed for many years.
The loophole was created by Labour’s reduction of capital gains tax to 18%. That has now been increased to just 28%, and we will certainly have an opportunity to debate that issue in the coming weeks. It was an important contribution. Furthermore, a banking levy has been introduced. It is important that the sector that dropped us into the mess should make a significant contribution towards helping us get out of it; I would argue that at this moment its contribution is still not sufficiently significant.
The hon. Member for North Durham’s last comments were about public sector pay. In the Budget, we have been seeking to protect the lowest-paid in the public sector.
Andrew George
I shall give way to the right hon. Lady, but I want my contribution to be short.
Mrs McGuire
I fully understand some of the hon. Gentleman’s comments about matters of judgment. I also understand that he thought that the £1,000 increase in the personal tax allowance was important. I have observed him for many years in the House, and he is an honourable person. Will he help Opposition Members to understand why since April and early May, when he was so violently against any increase in value added tax, he has started supporting a regressive increase in that tax? It would help break down some of the barriers that he senses if we could understand the thought process involved and the discussions that drew him into the VAT spider’s web.
Andrew George
I am grateful to the right hon. Lady for that intervention. She has come to the nub of the dilemma in which a number of other hon. Members and I find ourselves. Yes, the VAT increase was not part of the coalition agreement. I presupposed that it would inevitably be regressive and that I would automatically oppose it. The right hon. Lady will be aware that last Monday, I tabled an amendment on the Order Paper that sought to get the Treasury to provide the necessary impact assessment of the 2.5% VAT rise as it applied to families across the income spectrums, to charities and to businesses. There was mention of the rural travelling public as well.
Andrew George
I will just make this point, if I may.
There are very significant questions to be asked about this issue. On page 67 of the Red Book, the changes to VAT are described as “progressive”. I question whether it is entirely accurate to describe a VAT rise as being, on balance, progressive. [Interruption.] I am trying to make a constructive contribution to the debate; I am not taking a tribal view of this issue.
Andrew George
I am going to finish making this point about VAT, if the hon. Gentleman does not mind.
The best source that most people pray in aid when engaged in Treasury and Finance Bill debates is the Institute for Fiscal Studies, so I looked at the evidence that it has gathered on VAT. The hon. Member for North Durham referred to that in the context of the graph on page 3 of the Library note. The IFS makes it clear that, taking a snapshot in time, those who are engaged in the highest expenditure will be most affected by changes in VAT.
Andrew George
I will take more interventions when I have responded to the right hon. Member for Stirling (Mrs McGuire), who asked a very significant question that deserves an answer and is the nub of the point that I wish to make.
The IFS says that not only do the highest spenders pay the most VAT, but that it is in relation to their incomes. Therefore, as the useful graph in the Library note shows, the highest contribution is made by the lowest-income households, which inevitably, under its definition, are those with the highest expenditure in relation to income. The IFS goes on to say that we should look at the impact on lower-income households from the perspective not just of a snapshot in time but across a longer period, if not entirely a lifetime. In other words, its conclusion is much more equivocal. In view of that, we need to understand to a far greater degree the extent to which the VAT rise is regressive or progressive. I think it is reasonable—
Andrew George
Just let me finish my sentence. When I have made this point, I will give way to the hon. Member for Stretford and Urmston (Kate Green).
I welcome annex A of the Red Book and congratulate those on the Treasury Benches on introducing it. For the first time, it provides an impact assessment and evidence of the kind that Labour Members must accept that they did not provide in the past. However, I still do not think that it is enough—it is too superficial. I have asked a large number of questions of the Chancellor of the Exchequer, as hon. Members will know, because I believe that it is important that we understand a great deal more about the impact of the VAT rise on low-income households, charities, businesses and others.
Kate Green
I am very grateful to the hon. Gentleman for giving way, and I hope that my sentences will be a little shorter than his.
Is it not the case that in a complex argument, we are beginning to unpick the cumulative effect on lower-income households? It is a combination of a hit on their expenditure—not on their luxury spending but on their essential spending—and a reduction of their income if they rely on safety-net benefits, because of the future link with the consumer prices index, as well as the risk of their falling out of work and having at least a period of unemployment. I believe that the hon. Gentleman is rightly striving to describe that cumulative effect. I very much welcomed his amendment on looking at the impact of the VAT measures on those households.
Andrew George
I am very grateful to the hon. Lady, and we will have to compete on sentence lengths in future. Given her experience on the issue, it is worth while to quote once again the Save the Children briefing note that was circulated to the House, as the hon. Member for North Durham did. As the hon. Lady says, there is a cumulative effect, but if any amendments are tabled to the Finance Bill, they will be directly related to VAT and other matters will have to be considered in other ways, not necessarily under the Bill.
The Bill is rather narrowly set, and the Budget mentioned other measures, which must presumably come forward in another Finance Bill that will be presented to us in the autumn, so I assume that there will be a further opportunity for those issues to be examined, because only seven measures are contained in the 11 clauses of this rather narrowly drawn Bill.
I realise that I have just committed myself to another very long sentence with an enormous sub-clause in it, but I said that I would quote from the evidence presented to us by Save the Children, which is important. It states:
“Increasing VAT will simply widen inequalities and entrench the unfairness that exists in the tax system...It is also worth noting that data from the Office for National Statistics shows that, on average, the wealthiest households contain fewer children than poorer and middle income households, meaning that the unfairness of the tax system is weighted against children.”
Further to the point about whether the increase will have an impact on low-income households, Save the Children therefore rightly raises another issue. I should like the Treasury Ministers, in response to my questions and those that others will no doubt raise, to elucidate on that a little further.
What we need in this debate and in the further stages of scrutiny that the Bill will necessarily go through is a lot more information. I would describe the situation as a tribal mire in which there is translucent evidence, and that evidence needs to be much clearer.
Glenda Jackson (Hampstead and Kilburn) (Lab)
I am most grateful to the hon. Gentleman for giving way, and I admire his mea culpa—is it St Sebastian, the man who stands there with all the arrows? Certainly the hon. Gentleman has portrayed that for us this evening. However, with respect, the issue is not simply VAT. In his opening remarks he said he supported the Budget and the Finance Bill because we are all in this together, but we are not.
No one sitting in this Chamber or within the environs of this Chamber is in danger of losing their home because of the changes that his Government are bringing in with regard to housing benefit, but 303 of my constituents are in danger of losing precisely that. They are not alone in London or the country at large. The hon. Gentleman gave a very good mea culpa on VAT, but the complicity of his party with what the Conservatives are going to do to our country is not absolved, however long his sentence.
Mr Speaker
Order. May I just say to the hon. Lady that I could listen to her, almost without interruption, for some hours, but that shorter interventions would be helpful? It is always a pleasure to listen to her fantastic enunciation.
Andrew George
I think that we are all competing in sentence length—perhaps the hour is causing us to use sub-clauses. [Interruption.] I know that I am not the most articulate Member—I have a speech impediment; please bear with me.
The hon. Member for Hampstead and Kilburn (Glenda Jackson) made a decent point. If she listened carefully to my opening remarks, she would realise that my reference to the “we’re all in it together” theme was intended to criticise us all for being in it together by missing the point and making tribal remarks about the other side, but not being in it together with the country at large, which will suffer through some of the Budget measures. She made further points about my keeping narrowly to the subject of VAT. Interventions in my speech have been only about VAT, and I wished to make a brief contribution, which turned out to be much longer than I expected, on VAT. It is important, having commenced on that path, to continue on it and examine that provision in isolation. I know that it cannot be taken in isolation by the families, businesses and charities that it will affect. However, I still believe that it is important to consider it on its own.
The other issues, such as housing benefit, that the hon. Lady mentioned, are not in the Bill. I hope that the House will have a good opportunity to debate public sector spending and benefits, including disability benefit issues, which were announced in the Budget and clearly need to be debated later, with all the facts made available to us. We currently have a translucent position with regard to the evidence before us.
Andrew George
The hon. Gentleman has obviously not been listening. He is incapable of listening to anything.
We require honest and transparent information from the Treasury to help us reach a conclusion about the VAT measure’s other impacts. I hope that Treasury Ministers will revisit the issue, perhaps having undertaken further modelling and commissioned further studies on its impact on low income families, charities and businesses. I hope that they will be prepared to revise their position, if necessary during the Bill’s passage.
Several hon. Members have mentioned the rural fuel derogation and the opportunity for that to be introduced. The Chief Secretary promised to go away and make some further inquiries about that. I encourage members of the Treasury Bench to examine that carefully because the impact on rural areas will clearly be significant. The Chief Secretary made a commitment this evening to undertake further studies.
Mr MacNeil
While awaiting the big answer to why the hon. Gentleman is supporting the VAT increase, I ask him whether he agrees that a rural fuel derogation should be introduced before the VAT increase. After all, the rural fuel derogation is mentioned in the coalition Government’s programme, whereas the VAT increase is not. The Government have moved lightning quick on VAT; let us hope that they move as quickly on the rural fuel derogation. Will he support me on that at least?
Andrew George
The hon. Gentleman makes a good point. I remain agnostic about the process whereby the goal is achieved, but I wish him well with the aim and share his view, because the issue affects the very rural communities of west Cornwall and the Isles of Scilly in the same way as it affects the Scottish islands.
Andrew George
I am going to draw my remarks to a close, so I will take no further interventions. My proposal was purely for VAT impact assessments, and through questions to Ministers, I am seeking further information on the impact of the VAT increase.
Mr Byrne
I am grateful to the hon. Gentleman for giving way—the House has been following his remarks with some care. Before the Liberal Democrats gave their consent to the proposals in the Budget, they will have discussed the matter. In the interests of the debate that he is trying to stimulate, was it ever explained in those discussions that an extra £9 billion of tax must be raised by the Budget because its overall effect is to slow the recovery to such a serious extent?
Andrew George
If the right hon. Gentleman does not mind, I will move on. That is part of the debate that he will no doubt continue with Treasury Ministers. If Labour Members wish to avoid a VAT increase such as that proposed in the Bill, they need to propose alternatives. Those might include a further increase in the banking levy or an increase in capital gains tax, or perhaps VAT increases could apply to luxury goods but not to others, but alternative measures to fill the £13 billion hole in the public sector accounts would be needed.
I hope that future stages of the Bill will provide a more constructive environment in which to debate VAT and other matters.
Clive Efford
We have seen so many unexpected changes from the parties opposite, and my right hon. Friend is absolutely right to draw our attention to the fact that they have been silent on that issue.
I have another question about the Bill. Where does it mention the tax on the banks? When can we expect to see that measure before us? Why is it not part of the Bill? Perhaps the Liberal Democrats would like to intervene on me to tell me when we can expect to see it. We are told that it will be consulted on. If that is the case, is it going to go up or down, or is it going to stay as it is? What is the point of consulting the bankers—I assume that that is whom the Government are going to consult—on something that they would rather did not happen?
The Liberal Democrats told us that they were going to break up the casino banking system. The Secretary of State for Business, Innovation and Skills wanted the banks to be broken down into smaller banks, separating casino banking from normal banking. Yet we are told that the Chancellor opposes this and has set up a commission to look into it, which will take at least a year, thereby kicking it into the long grass. [Interruption.] I hear a sedentary intervention that we are dealing with the Finance Bill. Yes we are, and this is not in the Finance Bill, but it is an integral part of the Budget. It is therefore legitimate to ask where it is, when it is going to happen and what the consultation will be about, because it impacts on what taxes we raise on the people we represent. [Interruption.] I say to the hon. Member for St Ives (Andrew George), who did not make a very good job of defending his position on the increase, that that includes VAT.
On 12 March the Deputy Prime Minister called for a 10% tax on bank profits and a £2 billion job creation scheme to rescue the victims of recession. We keep being told by the Liberal Democrats that they have had an enormous impact on this Budget, so perhaps they could explain the impact they made here. I would have supported and voted for a 10% tax on bankers’ profits, instead of for taking people’s benefits away from them or for poor families paying VAT increases. After all, where did the financial problems start?
The Deputy Prime Minister kept digging during the general election, and on 20 April accused the bankers of behaving like “Arthur Scargill in pinstripes”. He then went on to say:
“The banks have basically been given untrammelled support by Labour and Conservative governments to do exactly what they like, and take massive risks with our livelihoods and our savings. They have been holding a gun to the economy. A progressive liberal like myself is not going to be squeamish about blowing the whistle on a vested interest.”
Well, where is it? Where is the whistleblowing on those vested interests?
The Liberal Democrat website—I do not know whether Liberal Democrat Members ever look at it—still says that they are going to bring “fundamental change” to our banking system.
“We will break them up and break them down.”
It continues:
“Until such a time, the taxpayer will have to continue underwriting the banks”—
well, we know that from this Budget.
“To recognise this, we are proposing a new levy on bank profits at a rate of 10%...This levy would be supplementary to corporation tax”.
Well, where did that happen? If we look at corporation tax outcomes—[Interruption.] The hon. Member for Cheadle (Mark Hunter) intervenes from a sedentary position. Would he like to repeat what he just said? I think he said that the Lib Dems did not win. Well, we all know that; that is why we are complaining about what they are doing.
If I look at what the banks are saying about corporation tax, I find that they are rewarded and compensated for the £2 billion levy that the Budget wants to raise. We have some more juicy quotes here; the Lib Dems might want to listen to them. Here is one:
“Bankers were relieved that the chancellor’s speech failed to repeat the coalition government’s threat to end ‘unacceptable bonuses’”.
Deutsche Bank analysts noted the significance of the corporation tax change:
“Taking 2% off the 2012 tax rate for the five banks listed in the UK would increase profit by £1.16bn, that is it should almost offset all of the banks’ tax. Overall a good outcome for the banks.”
A number of bank analysts calculated that some banks could benefit from the Chancellor’s measures. As I have said, Deutsche Bank concluded that it was a “good outcome” for banks, while an analyst at UBS expected Lloyds and HSBC to benefit by 2012 because the cut in their corporation tax bill was larger than the hit that they sustained through the bank levy. HSBC banking analysts concurred:
“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget”.
How has it come about that a party that went through the general election giving all those quotes about how they were going to break the banks up and break them down, and make the bankers pay until the pips squeaked, has come to support a Budget that takes from the bankers with one hand, pays it back with the other and rewards the banks with a tax benefit at the end of it? And at the same time they will be marching through the Lobbies to the drumbeats of the Tories, voting for cuts in benefits and an increase in VAT, and making the poorest people in our communities pay, when the banks are not paying.
It was all puff and wind from the Liberal Democrats during the election. We have heard it all before, and we are hearing it again. This time, however, they have actually got to vote for something. They are actually in charge and responsible for what they are voting for, and they are going to pay a very heavy price indeed.
Clive Efford
Perhaps the hon. Gentleman would like to intervene. I think he was shouting about the 10p tax rate. There were problems with that, and I will tell the House what they were. I will be quite frank. The 10p tax rate did not direct enough money to the poorest people in our communities. When we hear about the uprating of the lowest tax threshold from the Benches opposite, what we do not hear about is the clawback from the poorest people, who will lose housing benefit and other benefits. We never hear the full story from the Liberal Democrats when they are spinning on a pinhead to try to protect themselves from the charge of having said one thing and done another.
I could go on. The Liberal Democrats are such an easy target that I could be here all night. However, I will end by saying this. It is clear that what is before us tonight is not about the deficit, whatever excuses we hear from the Government Benches. This is an ideological change. Either Members believe that the state should intervene and assist, in particular, the weakest in our communities, or they do not. A stark choice is involved in terms of what Members support in this Bill.
There are 61 million people employed in the public sector. Some 3.9 million work in health, education, defence and social work, and roughly 2 million are employed in other services, including 530,000 civil servants. Those figures are huge, and those people are essential to many of our communities and to our economy. Moreover, 25% of public sector expenditure goes on private sector goods and services. The private sector will find it impossible to fill the gap left by the reduction in the public sector, as those who support the Budget try to claim it will. That 25% that feeds the private sector will be taken away from it when it is trying to grow. Expecting the private sector to grow at a rate that would enable it to fill that gap is just a pipe dream.
In its document “The Jobs Gap”, the Work Foundation predicted that the private sector could possibly absorb 500,000 job losses in the public sector, but that any plausible private sector recovery would be overwhelmed if the number approached 1 million. According to the predictions, it will considerably exceed 500,000. The foundation also warned that it was risky to assume that big cuts in public sector payrolls could be effortlessly absorbed by the private sector. There is often a mismatch in skills, which creates a delay in people finding jobs in the private sector, and the recovery tends to come in the most prosperous areas at the expense of the most impoverished. The Chartered Institute of Personnel and Development has estimated that 725,000 jobs will be lost in the public sector alone by 2015, although the number could be lower if the Government succeeded in pushing through pay cuts.
It is clear that these changes go further than is necessary to deal with the deficit. They do little or nothing to recoup money from the banks that have put the country in its present position, and they are clearly unfair on the poorest in our communities. This is the last point that I shall make to the Liberal Democrats. If they fundamentally believe that cutting back the state is what the country should do, they will come back for the national health service. It is not consistent with the measures in the Budget that it is possible to protect the national health service—a public service that intervenes at every level in people’s lives—and cut back other aspects of the state.
The Liberal Democrats and the Tories will have to come for the NHS. We only have to look at people such as Mr Daniel Hannan and the speech that he made in America. He was personally invited by the Prime Minister to speak at the Tory party conference, lauds the private sector and wants to cut the NHS and to move to a private health insurance system. Those are the people at the heart of the thinking of the Tory party. I suggest that the Liberal Democrats think very carefully before they vote for the Budget. It is an ideological Budget to cut back the state. They will not be able to defend the NHS once they have gone through the Lobby and voted for this Budget.
Budget Resolutions and Economic Situation
Andrew George Excerpts(15 years, 8 months ago)
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Clive Efford
The hon. Gentleman will probably know the history of this matter. Until November 2008 there was an agreement in this House about how to deal with the deficit. The Conservatives supported what the Government of the time were doing, so I suggest that he go back and look at the facts of what was going on.
The Liberal Democrats conveniently forget the statements that they made expressing their fear of what the Tories would do. I remind the House of one that was made at the start of the general election campaign. In an interview with The Observer, the leader of the Liberal Democrats, the right hon. Member for Sheffield, Hallam (Mr Clegg), said this about a new Conservative Government:
“They then turn around in the next week or two and say we’re going to chuck up VAT to 20%, we’re going to start cutting teachers, cutting police and the wage bill in the public sector. I think if you’re not careful in that situation…you’d get Greek-style unrest…be careful for what you wish for.”
I think that those are very wise words.
The Government have also prayed in aid what has gone on in Greece, Sweden and Canada, but my right hon. Friend the Member for Doncaster North (Edward Miliband) pointed out at the Dispatch Box that comparisons with Greece are utterly ridiculous. In Sweden they cut back public expenditure by 20% over 15 years, an approach that bears no comparison with the scale of what is being attempted here. It is true that the Canadian Government carried out a consultation exercise, but that was confined to short-term measures to deal with the deficit, and the intention was always that there would be a return to expenditure.
What we are seeing is a permanent cut-back of the state, and a withdrawal from expenditure for ever. That is what the people of this country are being asked to participate in through this consultation.
The hon. Member for St Ives (Andrew George) is the only Liberal Democrat in the Chamber. I am not surprised that there no others participating in this Budget debate. I have quoted the party leader as saying
“be careful what you wish for”,
and I hope that the hon. Gentleman will remind his friends of that, especially the ones who cheered this Thatcherite Budget. Supporting this Budget is a proclamation of an intent to reduce the size of the public sector in perpetuity. Liberal Democrat Members cannot support reducing the size of the state and say with any credibility that the axe will not swing against the NHS in the long term. This is an ideological change, and they cannot escape that fact.
Clive Efford
I welcome the hon. Gentleman getting to his feet. Perhaps he will explain whether he supports the state being withdrawn in this way.
Andrew George
I am grateful to the hon. Gentleman for giving way. I certainly appreciate the attention that he is giving to my party, although he fails to recognise that this is a coalition Government. There will be elements of both the Budget and the coalition agreement about which the Conservatives are especially enthusiastic, and elements about which the Liberal Democrats are especially keen. The measures in the Budget include a raising of the personal tax allowance, a significant improvement in annual increases in pensions, increases in capital gains tax and the introduction of levies on banks—all things that Labour failed to do at all.
Clive Efford
If that did not sound like an excuse, I do not know what would. A person on a low income who receives benefits or child tax credits is going to see those benefits reduced, so raising the personal tax allowance will make very little difference to household income.
Clive Efford
I assume that the hon. Gentleman has applied to speak in the debate, but it is clear that I have touched a raw nerve with him.
It is as sure as night follows day that those who support this Budget will want to cut the NHS next. Attacks on what has been describe as an “over-bloated” public sector are attempts to soften the public up in preparation for an unprecedented attack on public sector workers and the people who rely on the services that they provide.
The public sector will be hit in three ways, with a triple whammy—a freeze on council tax, a freeze on pay, and a squeeze on workers’ pensions. The claim that none of those would be necessary if the previous Government had not left the country in the state that the present Government say that they did just does not stand up to scrutiny.
In this Budget we are being asked to vote for taking away £1.8 billion from housing benefit, £1.4 million from disability benefits, £11 billion from the welfare state overall—and £2 billion from the banks. The Government say that they oppose nationalisation, but they have certainly nationalised the cost of the banking failure, and it is the poorest people in our constituencies who will pay the price.
The figures show that £1 in every £7 spent by the poorest 10% in our communities goes on VAT, but that drops to £1 in every £25 for the richest 10%. The IFS has confirmed that Labour’s plans would hardly have touched the poorest 10% at all, but this Budget will reduce their income by 2.5%. Labour’s proposals would have reduced the position of the richest 10% by 7%, but the Budget adds only a further 0.6% of that.
Capital Gains Tax (Rates)
Andrew George Excerpts(15 years, 8 months ago)
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Vince Cable
Anybody who read my comments on tax policy over the past year would, I think, hardly imagine that there was a surprise or a bombshell, because I said on many occasions that if taxes had to be increased, it made much more sense to tax expenditure than income or corporate income or employment. That was my view, and I expressed it on many occasions.
Andrew George (St Ives) (LD)
I wish to associate myself with many of the measures that we as Liberal Democrats can take pleasure from in the Budget, including the increases in personal allowance and in pensions. On VAT, to what extent does my right hon. Friend accept that we could have explored alternatives, including increasing capital gains tax still further or increasing the bank levy to ensure that the balance of tax increases was more proportionate?
Vince Cable
The Government did look at the possibility of raising capital gains tax further. They did serious analysis and the conclusion was that it would not raise any more revenue. That was the problem. It certainly would not have raised anything remotely like £10 billion. That is why we cannot evade this issue.
Let me turn to the central concern about value added tax, which is expressed on both sides of the House: the worry about regressiveness. I checked back on what independent analysts were saying about value added tax and its income distribution effects. It is worth looking at the work of the Institute for Fiscal Studies, which has conducted a distributional analysis based on expenditure. It came to the conclusion—this is its word, not mine—that value added tax was fairly “progressive” because of the exemptions that are given for zero rating, as food, children’s clothing and other essentials are key items in the expenditure patterns of poorer people. [Interruption.] The top 10% of the population pay three times as much in value added tax as the bottom 10%. [Interruption.]
Opposition Members are expressing righteous indignation about what they regard as regressive measures. Let me tell them which is the most regressive tax: it is council tax. Do they remember what happened to council tax under the Labour Government? On average, it went up 70%. Taking into account rebates, for the poorest 10% of the population it rose by 93%. It is the most regressive tax of all, yet they lecture us in this sanctimonious way about regressive taxation. They have no basis for doing that.
Finally, let me turn to the crucial issue of growth, which the shadow Chancellor raised. He is right that growth does not happen automatically; of course it does not. How do we proceed from the austerity that has to happen—from cuts in public spending—to growth in business investment and net exports, which we want to see? That is a genuinely important question, to which there are no simple answers. The perfectly fair point has been made that there are risks involved here, just as there are risks, which we judge to be bigger, in doing nothing, so let me try to answer this question seriously. If we are going to get growth, it will come partly through demand and partly through supply. How do we sustain demand? Essentially, we do so through monetary policy. That is what happened under the last Government. The reason why the economy kept on going through the recession was not Government fiscal stimulus. That was trivial, and it has now been withdrawn anyway. It was not for that reason; it was because we had very low interest rates, the expansion of money through quantitative easing and, of course, a big devaluation.
Those factors drove the economy in terms of demand and they will continue to do so. There is a reason for believing that that is what will happen: the Governor of the Bank of England called for this Budget and has now got it, and he has every reason to understand the need for monetary policy to support recovery.