Amendment of the Law

Angela Smith Excerpts

Thursday 22nd March 2012 Commons Chamber

[Vince Cable]

The shift from a system based on tax credits to one based on tax allowances obviously benefits the middle and low-income population as a whole. The impact on particular groups depends on a variety of things, including the minimum wage, which we have just uprated, and the complex interaction of tax and tax credits.

However, let me turn to the point about pensioner income. I find it quite extraordinary to hear the shadow Chancellor expressing such alarm about the impact of the Budget on pensioners. I do not know whether he has looked at the scorecard, but it is clear. In 2012-13, the effect of the increase in the basic state pension and the pension credit minimum income guarantee will be to transfer £1.75 billion to pensioners. The impact of the changes on age-related allowances is £360 million—one fifth of the additional funding going to pensioners as a consequence of this Budget. When we look at the pensioner population, we of course see big differences. There are 5 million pensioners who do not pay tax, many of whom are poor, and who are not, of course, affected by the changes at all. There is a small group of people—frankly, my contemporaries—who have high retirement incomes and considerable asset wealth, and it is right in principle that they should pay a bit more. There is a group in between, as the shadow Chancellor rightly said, of people who are not wealthy and do not have particularly high incomes, but who could be affected to a limited extent, as a result of inflation eroding the value of the allowances—inflation is currently estimated at 2.5%. Those people will benefit enormously from the increase in the basic pension.

Let us just remind ourselves what is happening. We have an increase of £5.30 in the basic state pension for a single person. On top of the increase last year, we are talking about a £10 increase in the basic state pension, as a result of the protections that this Government have introduced. For many years, the pension steadily fell behind earnings as a result of de-linking, and, despite numerous promises, the previous Government did absolutely nothing about the problem. More and more pensioners were sucked into means-testing. This Government have corrected that problem. We have a triple lock system and, as a result of that, and of this Budget, the vast majority of pensioners on low and middle incomes will be considerably better off than they were before.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

What does the Secretary of State have to say to the Institute for Fiscal Studies, which has today described the Budget as a “hotch-potch of reforms” that are risky because they might be “less fiscally neutral” than the Chancellor is claiming?

[Vince Cable]

I am sorry; I do not follow the logic of the question. The Budget is of course fiscally neutral. I have just quoted figures, which the Office for Budget Responsibility has validated, which show that pensioners as a whole will gain five times as much from the increase in the pension and from pension tax credits as from the change in allowances.

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[Alex Cunningham]

I am sure that my hon. Friend knows exactly what my choice would be—it would be on the part of working families.

I have mentioned the 1.5% cut. It might sound paltry, but even if it represents as little as £1 or less per week, it is still worth a lot for those on a low income who need to feed a family. It will also be the poorest families who are, or will be, hardest hit through the uprating of benefits in line with the consumer prices index rather than the retail prices index, through higher food and fuel costs, through the freezes to child benefit and working tax credit, and through the time-limiting of employment and support allowance.

We must not forget that for low-paid workers inflation is not 3.4%, as it was yesterday, but nearer 10%, because they spend proportionately more on food, fuel and transport. The Government’s raising of the personal tax allowance is welcome but sadly does nothing to help the one third of the adult population, including part-time workers and pensioners, who are too poor to pay income tax, yet still have to face those same challenges.

[Angela Smith]

Does my hon. Friend agree that the threat of £10 billion of further spending cuts to welfare after 2014 will only exacerbate the problems he is describing?

[Alex Cunningham]

I agree with my hon. Friend. I have people streaming through the doors of my surgeries, and e-mailing and phoning my surgeries, saying how worried they are now, let alone about the impact of £10 billion of cuts in the future.

In the borough of Stockton-on-Tees, 23% of children already live in poverty, and the Child Poverty Action Group has highlighted that the jobs shortage in the north-east region, exacerbated by further public sector jobs losses, will lead to even greater rises in child poverty. Quite simply, unless parents can access and remain in work, the economy will struggle to return to sustained growth and child poverty levels will be hard to reduce.

The Government’s changes to tax credit rules mean that 2,500 families with more than 5,000 children in the Tees valley alone, working between 16 and 24 hours a week, will have to work at least 24 hours a week or lose that working tax credit. That is as much as £3,870. What research have the Secretary of State for Work and Pensions and the Government done to find out how many people will be able to find those extra hours? Surely he understands that it is deeply unfair that a family already on a low income will lose vital cash to feed their families because their employer cannot provide them with more hours.

What about women? Some 72% of the Government’s changes to tax and benefits adversely affect women, and with 46% of working women being employed in the public sector in the north-east, they are bearing the brunt of the Government’s enforced public sector job losses. The number of women in work across north-east England has already fallen by 19,000, with unemployment among women increasing at twice the rate of men in recent times. I saw no hope whatever in the Budget that the hundreds of young people in my constituency would get the help to secure long-term employment. The Chancellor spoke of skills, but not how they would be delivered. He certainly did not talk about jobs for those young people.

I have tried to concentrate on poverty and the substantial increase in the number of families and individuals who are now facing the toughest of times. We desperately need economic policies that will deliver the jobs and growth that our people need. We do not want to see more and more people forced out of work in the coming months. We do not want to see pensioners penalised by having their personal tax allowance frozen. We do not want to see any growth in the number of soup kitchens and food banks springing up across the country, including at the New Life family centre in my constituency. We do not want to see women bear the brunt of the unfair cuts and rules being imposed on them. The Budget, read out to much cheering from the Tories and their Lib Dem allies yesterday, will not help to deliver any fairness whatever in our society; nor will it provide the platform on which to grow our economy.

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[Angela Smith (Penistone and Stocksbridge) (Lab)]

This is a millionaires’ Budget delivered by a Cabinet dominated by millionaires. It is regressive in what it does with tax, but it is equally a Budget that will do little, if anything, to deliver the jobs and growth that the economy needs. Exactly a year ago, the Chancellor told the House that he had just

“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]

He told us that we would see the economy turn the corner in this financial year, that positive growth figures were forecast, and that unemployment would stabilise as the private sector rose to the challenge as the public sector retracted.

[Mr William Bain (Glasgow North East) (Lab)]

Is my hon. Friend aware that the OBR is predicting that the effect of this Budget will be to increase unemployment by 100,000 this year and next?

[Angela Smith]

I agree with my hon. Friend; unemployment already stands at 2.67 million, and youth unemployment is at a record level.

Despite the Chancellor’s predictions a year ago, things have turned out very differently in the real world. As we enter spring 2012, it is clear that the British economy is flatlining, and the OBR is forecasting just 0.8% growth for 2012.

In effect, the economy will continue to flatline. The Government have conceded that they will overshoot their borrowing target by £150 billion. Consumer confidence is also at a record low. As people see their income squeezed while VAT increases push prices up and inflation runs ahead of wages, many are fearful for the future. VAT costs a family an average of £450 a year, and while the increase in personal allowances reduces tax for the low paid, that is completely outweighed by the VAT rise, cuts to tax credits and higher fuel duty—again, smoothed over by the Chancellor yesterday.

The major beneficiaries of this Budget are, of course, those 14,000 people earning £1 million or more, who are receiving a tax cut of more than £40,000 a year. Some 300,000—just 2% of earners in the UK—will benefit overall from the cut of the top rate to 45%, yet just 4,000 houses a year are sold for more than £2 million. That means that the vast majority of those who gain from this tax cut for the richest will be totally unaffected by the rise in stamp duty to 7%.

[Sheila Gilmore]

What we hear from the Government is that if people are avoiding those taxes, we should just give up on it. Is there are any reason, however, in my hon. Friend’s opinion, why we cannot bring in measures to clamp down on tax avoidance while retaining the 50p tax rate?

[Angela Smith]

I completely agree with my hon. Friend, and I shall come to the point a little later.

To put the tax reductions for top-rate earners in context, we need to understand that these are people who earn £2,900 a week—that is right, each week. That is more than an average worker in Sheffield earns in a month. It is quite ironic, is it not, that this Government should believe that the best way to make the poor work is to cut their income, while at the same time believing that the best way to get the rich to work harder is to boost their income. The reduction is also a massive gamble. As Jonathan Freedland points out in The Guardian, today, it is built on

“a hoped-for influx of returning top-rate taxpayers: to most people that looks like giving up hard cash in return for a wish.”

Since when has tackling tax avoidance qualified as a tax increase for the rich?

Pensioners are also hard hit. The granny tax—the £3 billion raid on pensioners by freezing their personal allowance—will mean that people who turn 65 next year will lose out by £314. On average, 4.5 million pensioners will lose £84 a year from next April.

One has to ask what influence the Deputy Prime Minister has had on this Tory Budget, when the personal allowance increase delivers less than the recent increase in VAT, so it amounts to a tax cut for the rich. Let us not forget that the Chancellor has pencilled in more tax increases for after 2014 and a further £10 billion cut in welfare costs. To people out there, that means even further potential cuts to child benefit, pension credit and tax credit.

In difficult times—and these are difficult times for many families—a Budget needs to be fair, and it needs to give people hope. Is it fair that a one-earner family on £55,000 will lose much of their child benefit, while a couple on as much as £99,000 can keep every penny of it?

As for jobs and growth, as the Business Secretary has said, this Government do not have

“a compelling vision of where the country is heading”.

For once, I agree with the Business Secretary. There are no measures of substance in the Budget to help rebalance our economy, either geographically or structurally.

Last year, the Chancellor told us he had put fuel in the tank of the economy. Unfortunately, he put the wrong fuel in the tank and the economy has stalled. If he does not do something soon for the many in this country, the economy will not only continue to splutter along, failing to fire on all cylinders, but will continue irreparably to damage the lives of those who need jobs and growth to improve their life chances.

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[Mr William Bain (Glasgow North East) (Lab)]

In the past 24 hours, many people have attempted to provide a description of this Budget. Some have compared it to Lord Lawson’s giveaway Budget in 1988, others to the orthodox Budget of Philip Snowden in 1931, but in entrenching the disastrous mistakes in fiscal policy of its two immediate predecessors perhaps this Budget will deserve to be known as the great stagnation Budget. Despite the measures unveiled by the Chancellor yesterday, the verdict of the Office for Budget Responsibility was that they will make no difference to the levels of growth in this country in the next two years.

[Angela Smith]

Does my hon. Friend agree with The Guardian, which said this morning that the Liberals will live to regret the fact that they have moved so far away in principle from the Lloyd George Budget of 1909?

[Mr Bain]

My hon. Friend is entirely right. Staggeringly, in that year the Liberals introduced one of the most progressive Budgets—the people’s Budget. This Budget certainly does not compare to that remotely; it is a highly regressive Budget, as the Institute for Fiscal Studies has confirmed this afternoon.

The effects of this Budget are likely to be 100,000 more job losses—20,000 more in the public sector; £150 billion more borrowing than that forecast in June 2010; and a substantial rise in inequality across the country. Having choked off growth in the past two years, and having weakened both public and private sector demand with austerity cuts that strip eight times more public consumption from the economy this year and nine times more next year than even the eurozone average, the Chancellor is presiding over the weakest recovery from recession since the 1870s.

In addition, as the OBR revealed yesterday, despite the Chancellor’s rhetoric on diversifying the economy and promoting manufacturing, his plan for growth is based on the share of private consumption more than trebling, from 12% to 37.5% this year alone; half of all the new growth in the next five years is forecast to come from consumption. This is not an export-led recovery, but debt-fuelled consumption to maintain stagnant output, at a time when consumer spending has fallen in the UK by 0.8% in the past year. Small wonder that the OECD has found that domestic demand in Britain has slumped. It rose by 2.7% in 2010, when Labour was in government, but fell by 0.2% this year, under this Chancellor. The figure is massively below the 2012 OECD average increase in economic demand of 1.4%. It shows the crisis of the lack of demand that is in our economy, which the Chancellor did not begin to tackle yesterday.

On growth, the Chancellor has given up on fiscal policy as a lever of driving demand, even when the credit ratings agencies, the International Monetary Fund and his US counterpart warn him not to. We face a jobs crisis, and in a crisis of this magnitude, we need fiscal and monetary policy to work in concert to grow the economy out of a slump.

[Angela Smith]

Is it not also the case that the current use of monetary policy to drive growth—quantitative easing—is driving the markets but not necessarily the growth that this country needs?

[Mr Bain]

That is precisely the point that many small businesses up and down the country are making. What we should have had yesterday was a facility to securitise loans to small businesses and have them indemnified by the Treasury. That would mean that the quantitative easing money could flow directly from the Bank of England into small and medium-sized businesses, and not simply on to the balance sheets of the banks. That would have made a huge difference. As many businesses have said, the credit easing scheme launched by the Chancellor with great fanfare on Tuesday will barely scratch the surface of the £190 billion shortfall in credit financing from which our businesses are suffering at the moment.

The Chancellor is refusing to learn the lessons from Japan in the 1990s. He is placing all his eggs in the basket of long-term low interest rates, but in Japan that led only to a decade of stagnation because of similarly catastrophic mistakes in cutting spending too far and too fast.

Even on its own terms, the Budget was a failure for business, with levels of business investment £48 billion below their peak of 2008 and business investment growth having been slashed from 7.7% to just 0.7% in the OBR’s latest forecast. There should have been innovative ideas about promoting long-term investment; there should have been plans for a national investment bank; there should have been plans to bring forward more infrastructure spending; there should have been plans to enhance and boost the borrowing powers of the UK Green investment bank, which will not have those until 2016 because of the Chancellor’s failure on growth. But in yesterday’s Budget, sadly, there were no ideas that would really make a difference to business.

Shamefully, the Chancellor never even mentioned, much less produced, a plan to tackle youth unemployment. With 1 million young people out of work across the United Kingdom and with the figure approaching one in four in Scotland, he should have announced measures for a proper national insurance holiday for small and medium-sized firms employing young people. He should have repeated the bank bonus tax to help to create 150,000 youth jobs. He should have announced a temporary VAT cut, which would have boosted consumer demand, and he should have cut VAT for home repairs and maintenance to give the construction sector a much needed lift.

The test on which this Budget is found most wanting is that of fairness. We are told that the wealthiest 3% of the population require massive fiscal incentives to reward hard work, but it is a different approach when it comes to those on lower incomes or pensioners who have saved for their retirement. The poor are told to work harder and do extra hours of work that are not available in the depressed economy, but 14,000 millionaires will receive a permanent tax cut of £40,000. This Budget is highly regressive and I urge Members to vote against it on Monday.

We are told that the Chancellor has advised the Prime Minister on matters strategic, instead of focusing on the crisis of demand made in No. 11 Downing street—a flatlining economy, slumping business investment, rising unemployment and soaring inequality. The country will not forget that yesterday was the day when the part-time Chancellor produced a bit-part Budget.

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[George Freeman]

I am going to plough on if I may. The move on the top rate of income tax from 50p to 45p has set a clear direction.

[Angela Smith]

Will the hon. Gentleman at least acknowledge that a significant proportion of the private sector jobs created are part-time and in that sense are doing much less than he suggests to drive growth in the economy?

[George Freeman]

If my constituents were given the choice between a part-time job in a sustainable private sector business or a full-time job in the public sector that was not sustainable, I know which they would choose.

More than 600,000 new jobs have been created in the private sector since the election.

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[Stephen Gilbert (St Austell and Newquay) (LD)]

I welcome a Budget which shows that the coalition Government remain determined to tackle the deficit and to drive growth and job creation throughout the country, and that we will deliver tax cuts for millions of hard-working people and demand from the wealthiest in our society that they pay their fair share. This really is a Budget for millions of ordinary families throughout the country who are struggling to make ends meet, not a Budget for millionaires.

I welcome in particular, of course, the increase in the personal income tax threshold, the largest increase for a generation and a thoroughly progressive policy. It has gone from the front page of the Liberal Democrat manifesto and been turned into action under the coalition Government, and both parties deserve credit for introducing it. In terms of helping the families whom I represent in Cornwall, the measure sits alongside a freeze in council tax and the Government’s determination to tackle the injustice of water bills throughout the duchy. Some 19,300 people in Cornwall will be taken out of paying income tax, and more than 4,000 in my constituency alone will no longer pay it. I thoroughly commend the measure to the House and hope that in future years the Chancellor will be able to go further and faster.

[Angela Smith]

Will the hon. Gentleman not at least acknowledge, as my hon. Friend the Member for Glasgow North East (Mr Bain) said earlier, that the biggest beneficiaries of the increase in the tax allowance will be higher-income earners, not the lowest-income earners?

[Stephen Gilbert]

It is a bit rich when the Labour party talks about benefits to higher rate taxpayers, given that it abolished the 10p rate of tax, making 5 million of the lowest paid pay more tax. The coalition Government are taking the lowest paid out of tax, and that is a better direction of travel for the people whom I represent—and, I am sure, those whom the hon. Lady represents as well.

I am also keen to welcome the measures in the Budget to drive business growth—the cutting of red tape on small and medium-sized firms; the introduction of cash accounting; the enterprise management incentive scheme; and the fact that the Government are making available £20 billion-worth of additional funding to ensure that businesses across our country, from which will come the growth that will get us out of our financial difficulties, have the money to invest, expand and grow.

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[Christopher Pincher]

I will not, because I do not have much time.

The corporation tax reduction sends a message that this country and its businesses are open for business.

[Angela Smith]

Will the hon. Gentleman give way?

[Christopher Pincher]

No, the hon. Lady has had enough time to get herself into Hansard. I am not going to give way to her.

The reduction in corporation tax also sends a message to business that the Government are on its side and want it to create the jobs that pay the taxes that fund the public services we want and need. It is unfortunate that we have heard the shadow Chancellor today, and the shadow Chief Secretary bestriding the airwaves yesterday, saying that they would not have made the cut and would reintroduce corporation tax at 26p. What a message that sends to businesses in this country—that Labour has learned nothing and forgotten nothing from its mistakes. It does not want to kill the fatted calf; it wants to starve the entire herd.

I wish to give Ministers an important message about bureaucracy. Small and medium-sized enterprises have said to me that when they apply for a slice of the Government procurement pie, as the Government want them to do, they find the online application process time-consuming. For small businesses, time is a form of tax. I hope that my hon. Friend the Financial Secretary, who is in his place, will work with my right hon. Friend the Minister for the Cabinet Office continuously to streamline the process, with a view to reducing the time needed for initial online applications by just a few hours. That would help many small businesses apply for the slice of the Government procurement pie that we all know they need.

In the past, Chancellors have had a tin ear. Conservative Chancellors have made Budgets for accountants by accountants. The last Labour Government, after a reasonable start, began to write Budgets by spinners for spinners. It seems to me that Budgets should be made for the people. The Budget that we heard yesterday was an authentic Budget that spoke to the people. It spoke to the strivers, who want to get up, get on and make something of themselves. It spoke to the grafters, who are trying to build a business. It spoke to mums and dads who want their kids to grow up in a country that is free of crippling debt. It spoke to the aspirants, and I am happy to support it.