Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 4th November 2014 Commons Chamber

[Mr Osborne]

We will honour the commitments made during the referendum campaign by all the Unionist parties to devolve further fiscal powers to Scotland. We will honour the commitment we made, and I would ask the Scottish National party to honour the promise it made that this was a referendum which would settle the issue of Scottish independence at least for

“a generation…perhaps for a lifetime”—

I am quoting Alex Salmond. Perhaps the SNP should stop trying to reopen the question that was resolved, and work with us to make sure that Scotland has a great economic future.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

The Chancellor talks about creating a northern powerhouse, but really is he not just struggling to play catch-up, because while he has been shifting funds from northern cities to wealthier parts of the country, the unemployment rate in the north-east is the highest in the country, wages for working people in the north have fallen by even more than the national average and across the north the number of people unemployed for a year or more is up 62% since the last election? Why will he not match Labour’s plan to devolve real power and £30 billion of funding not just to the north, but to all city and county regions?

[Mr Osborne]

Labour ran one of the most centralised Governments in history. It did not devolve any powers to anyone—

Energy-intensive Industries

Catherine McKinnell Excerpts

Thursday 11th September 2014 Commons Chamber

[David T. C. Davies]

It indicates to me that we have got our priorities wrong. We certainly should be looking at water, and we should be looking at chemicals, but the hon. Lady is making the mistake of thinking that carbon dioxide is some sort of poison which should be equated with whatever chemicals were put into the water supply. Carbon dioxide is a perfectly natural gas, and it is vital to growth. Without carbon dioxide, we would not be able to grow anything at all, and it is far from certain that carbon dioxide is responsible for the 0.8° rise in temperature. We can only say that it is responsible for a small amount.

Let us be honest. We have a sort of pseudo-religion of global warming—no one can even begin to question it—and the Intergovernmental Panel on Climate Change publishes the bible of that pseudo-religion in the form of the report that it produces every couple of years. In its latest report, the IPCC itself says that it can only state with certainty that half the temperature increase in the second half of the 20th century is due to man-made carbon emissions. Well, in the second half of the 20th century the actual increase in temperature was 0.5°, so what the IPCC is saying is that it can only state with certainty that man is responsible for a 0.25° increase, which is about a quarter of the figure that we are constantly given. So what is the problem that we are trying to address with all these taxes on our industries?

I have the greatest respect for the Minister, and, as I have said, I am absolutely confident in her ability and her desire to support manufacturing industries. I suspect that she may share some of my concern, shall we say, although I will not embarrass her by putting her on the spot with comments like that. But I hope that she is taking note of something here. The reality is that Members in all parts of the House want to distance themselves from the consequences of policies that they themselves have called for.

A few years ago, no one was more enthusiastic about green policies than Opposition Members. What about that Liberal Democrat Member? I have forgotten his constituency now, but he is not in the Chamber. He was the most enthusiastic of all, constantly championing green policies, yet it was he who drew our attention to the fact that manufacturing companies in this country were paying twice as much as the Germans for their energy. Perhaps he is another one who should be invited to the Global Warming Policy Foundation some time. I think that if the hon. Member for Brighton, Pavilion (Caroline Lucas) had a steel factory in her constituency, even she would probably be whingeing and whining about the taxes that she herself had enthusiastically called for. None of these people will support the Front Bench when it comes down to it. They call for green taxes, but they do not want the consequences. The level of hypocrisy that comes out of the green movement is absolutely astounding.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I fear that the hon. Gentleman has misunderstood the subject of the debate, which is, specifically, carbon taxes on energy-intensive industries. Those taxes have not been supported by Greenpeace, and are not considered to be green taxes at all.

[David T. C. Davies]

Greenpeace does not support anything as far as industry is concerned. None of the environmental groups do. They call for us to decarbonise completely, but whenever we offer them some handy solutions—such as nuclear power, which generates large amounts of electricity without carbon dioxide—they do not want to know. And what about shale gas? I was interested to hear the hon. Member for Penistone and Stocksbridge call for us to export it, as well as mentioning a company in her constituency that supports nuclear. Exporting shale gas is a good idea. It produces half the amount of carbon dioxide that is produced by coal, and it is vital for the wind industry that we have gas to back it up. However, the greens do not want to know about that. What about the Severn barrage, which was proposed in my constituency? I would have some concerns about the cost, but I believe that it would generate 20% of the UK’s electricity supply without any carbon dioxide. The greens are more worried about the fact that some wader birds would be inconvenienced. They have wings—they could fly somewhere else—but the greens do not want to know about it.

My point to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) is this. She will never, ever satisfy the green movement. Let us forget about pandering to the green movement. Let us forget about pandering to all those who call for carbon taxes and who are a little more sensible, such as Opposition Members, because they will not support the consequences either. Let us remember that, at this moment in time, it is not the meteorological climate that we need to worry about, because that has not changed for about 18 years. It is the economic climate that we should be concerned about.

I hope, and I am sure, that the hon. Lady will champion Britain as a great place in which to do business, and a great place to which to come and make things, and will do something about these ridiculous green taxes, which do not just need to be scaled back—I will not use quite the words that were used by the Prime Minister, although I welcomed them greatly—but need to be completely scrapped.

--- Later in debate ---

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I congratulate my hon. Friend the Member for Stockton North (Alex Cunningham), the hon. Member for Redcar (Ian Swales), who is no longer in his place, and the Backbench Business Committee on securing this important and pressing debate on the impact of carbon taxes on energy-intensive industries. I speak in my capacity not only as a shadow Treasury Minister but as a fellow north-east MP. The north-east is one of the most energy-intensive areas of the country, and a base for the many companies that have been mentioned today: Wilton International, INEOS and Tata Steel are just a few of the largest. I am therefore aware of the importance of this issue for the future of our productive industries, for jobs and for economic growth in the region and across the UK.

The Government’s own figures suggest that, at national level, the chemicals, paper, ceramics and metals industries directly contribute about 2% to UK gross value added. They have a combined turnover of £130 billion and directly employ about 330,000 people. The TUC estimates that, if we include those working in the wider supply chain, there are about 800,000 people working in the energy-intensive industries—or foundation industries, as my hon. Friend the Member for Stockton North prefers to call them—and the supply chain.

I recently visited Ibstock, which has a brickworks in Throckley in my constituency. It is the largest brick producer in the UK, with 19 sites across the country, employing around 1,500 people. The North East Process Industry Cluster estimates that 1,400 such companies across the region export £12 billion worth of product each year. So, if we are to achieve a balanced recovery and build a highly productive, more export-led economy, we have to recognise that manufacturing, ceramics, glass, chemicals and steel—all energy-intensive industries—are an important part of that picture. There is agreement across the House on the importance of supporting those industries and ensuring that they create the jobs and economic growth that we all want to see.

The motion before us today refers to the imposition of carbon taxes and levies, and rightly welcomes the relief announced in this year’s Budget to limit future rises in the carbon price floor. However, the bottom line is that this support—capping the future costs of carbon and providing an exemption for combined heat and power plants—has come too late. It is more than 12 months since the measure was meant to begin compensating energy intensives, but that was certainly too late for one company on Teesside, which told me that it had had to close one of its coal boilers in 2014, resulting in 100 job losses. There have been other cases in which manufacturers, steelworks and brickworks have fallen victim to the ill-thought-out carbon price floor, as my hon. Friend the Member for Stockton North has shown.

I understand that the hon. Member for Warrington South (David Mowat) thoroughly resents what he describes as crowing from the Labour Benches on these issues, but many of the problems that these companies are facing in relation to the changes in the taxation system have arisen under this Government, and we warned of the consequences throughout this period. The carbon price support rates of the climate change levy, which underpin the carbon price floor, were entirely the creation of this Conservative-Liberal Democrat coalition Government. They were introduced in the Finance Act 2011, despite the deeply held and loudly voiced concerns of Opposition Members who tried to amend the legislation on a number of occasions before its implementation.

My hon. Friend the Member for Bristol East (Kerry McCarthy), then shadow Economic Secretary to the Treasury, tabled an amendment calling on the Government to at least consider the impact of this carbon tax on a whole range of affected parties, from energy bills and fuel poverty to renewables and the energy sector more widely. More importantly, the Opposition also asked the Government, in carrying out that review, to take stock of the impact of the carbon price floor on energy-using manufacturing industries and on employment in those industries. My hon. Friend said at the time that there was a danger, particularly in the absence of a credible Government plan for growth, that growth and jobs would be exported to other countries, that UK industry would be at a disadvantage, and that jobs and growth would be put at risk. Those concerns, and our amendment, were dismissed at the time, but unfortunately many of them have been realised. The Government’s U-turn in this year’s Budget has recognised that fact, but for some it has come too late.

In March this year, for example, Thai-based steelmaker SSI, located in the constituency of the hon. Member for Redcar (Ian Swales), revealed that it had yet to turn a profit despite producing 5 million tonnes of steel. It has regularly raised concerns about the risk to jobs. Indeed, SSI raised concerns about the carbon price floor, along with the rest of us, back in 2012. In March 2012, we lost Rio Tinto Alcan’s aluminium smelter plant in Lynemouth on the Northumberland coast with the loss of more than 500 jobs. It had been a source of employment in the area for more than 40 years. Rio Tinto Alcan had estimated that its energy costs would jump from £7 million to £100 million as a direct result of carbon taxes—including, of course, the carbon price floor.

I want to turn to the question of compensation. In 2011, the Chancellor promised a £250 million compensation package for the worst-affected heavy energy-intensive industries for the “indirect costs” of the EU emissions trading system and the carbon price floor. Three years later, however, Ministers’ statements and answers to parliamentary questions suggest that only 53 energy-intensive companies have been compensated for the costs of the EU ETS, and that—as far as I am aware; I would be grateful if the Minister updated us on this—absolutely none has been compensated for the costs of the carbon price floor, even though state aid clearance was finally received for that in May.

Energy-intensive industries, having being promised by the Chancellor in 2011 that, thanks to Government support, they would not be priced out of the world economy, have now been waiting for around 18 months for help on the coalition’s carbon tax, but that help remains out of sight. It seems that, due to the delays, the Government have paid only about £31 million of the £250 million compensation that they promised in the 2013 autumn statement. Will the Minister clarify whether the Government intend to pay out the full £250 million by the end of this Parliament, as was originally promised? The Chancellor talked about the world economy, but what about the European economy? The Government’s own figures suggest that our heavy industry has been priced out there, too, as the motion before us today notes.

A recently published consultation paper included estimates from the Department for Business, Innovation and Skills and the Department of Energy and Climate Change of electricity prices faced by energy-intensive companies in the absence of Government intervention, compared with other countries around the world. Given that there is effectively an absence of Government intervention at the moment—aside from EU ETS compensation to just 53 of the thousands of companies affected—the Government’s figures drive home the stark reality of the impact on our productive industries. UK energy-intensive industries face the highest costs of any country in the world. The figures predict that in 2015 our energy-intensives’ electricity costs will be almost double those of their counterparts in Germany—a country already known for its high energy prices—let alone of those further afield in Japan, the US or China, whose electricity prices are dwarfed by ours.

I put to the Minister today the same question that I have put to her predecessor and to other Ministers: when will energy-intensive companies finally start receiving compensation for the costs of the carbon price floor, which the Chancellor promised three years ago? More importantly, will she clarify whether the Government have given up on backdating compensation for the last 18 months in which energy-intensive companies have had to pay for the carbon price floor without any of the help that the Chancellor had promised? The former Energy Minister, the right hon. Member for Sevenoaks (Michael Fallon), originally suggested back in February that the Government would continue to press the case for backdating. Yet, in a delegated legislation Committee in July, he appeared to backtrack on that, saying that it was a “lost cause”. Perhaps today’s Minister will clarify the point: have the Government given up on backdating as a lost cause?

I wish to press the Minister on one further point. Welcome though the state aid clearance in May was, it also turned out to be a further blow for the hopes of many other energy-intensive industries, particularly the glass, ceramics and minerals sectors, which the EU Commission deemed to be

“less exposed to higher energy prices”

and which were therefore excluded from the list of eligible industries. The then Minister of State—he is now Defence Secretary—said in July that he “remained concerned” about this decision and that the Government would seek a review of eligible sectors with the Commission “later this year”. The Financial Times recently reported that the UK Government were “considering options” in that respect and pushing ahead with an application to compensate these newly excluded sectors, although it commented that the chances of success “look slim”. Given that previous Minsters have promised to press the case, only later to seem resigned to lost causes, what reassurances can this Minister give hon. Members and these companies, which we know are interested and following this debate, that the Government are doing everything they can to secure this much-needed support for industries struggling to remain internationally competitive?

Earlier this year the Opposition commissioned Mike Wright, executive director of Jaguar Land Rover, to conduct an independent review of advanced manufacturing in the UK. His report clearly set out the challenges we face, including, most importantly for this discussion, on how we have a proper long-term industrial strategy that promotes investment and helps us realise our full productive, innovative potential. Inherent in that is striking the right balance between becoming world leaders in tackling climate change, and in the technical solutions that come with it, and not putting our businesses at a competitive disadvantage compared with other advanced industrial economies.

I wish to conclude by reminding hon. Members of the Chancellor’s words in 2011. He told this House in his autumn statement:

“We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs from this country”.

Most importantly, he concluded that

“businesses will fail, jobs will be lost, and our country will be poorer.”—[Official Report, 29 November 2011; Vol. 536, c. 807.]

I could not agree more, but unfortunately that has been the consequence of many of the Government’s ill-thought-through carbon taxes to date, which, in the absence of any comprehensive support or compensation, have damaged our competitiveness, cost vital jobs and served only to export carbon emissions abroad and not to eliminate them.

National Insurance Contributions Bill

Catherine McKinnell Excerpts

Monday 8th September 2014 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

Before I begin my remarks, I should probably declare an interest as a member of the all-party parliamentary group on the freelance sector. As such, I am fully aware of the invaluable contribution that genuinely self-employed people, including freelancers, make to the economy. They play an increasingly prominent part in the generation of economic growth and prosperity.

As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) and the Financial Secretary set out, the main aim of the Bill is to make life a bit easier for self-employed people in respect of the payment of their national insurance contributions. That is more important than ever, given the structural changes in our labour market over the past few years. There are 4.5 million self-employed people, which is more than at any point in the past 40 years, according to the Office for National Statistics. Welcome though the changes are, the Government need to go further in supporting the self-employed because, while we know that the majority of working people are not feeling better off in their pockets, it is becoming increasingly clear that the self-employed have been hit particularly hard by the cost of living crisis of the past few years.

The latest labour force survey figures from the ONS show that more than a third of the new jobs that have been created since the last quarter of the last Parliament—39%—are self-employed jobs. The self-employed make up one in seven people in the work force. The Institute for Public Policy Research recently described the UK as the

“self-employment capital of Western Europe”.

Although the Government like to boast that 2,000 businesses have been set up and have been “flourishing” in every month over the last year, that masks the true effect of the cost of living crisis on many self-employed people. Although self-employed people are included in the employment figures in the ONS labour force survey, they are not included in the pay figures. The Resolution Foundation has concluded that, were the 4.5 million self-employed people included in the labour force survey, average wages could have fallen by a further 20% due to the huge shift towards low-paid self-employment. Whereas the official figures show that working people are, on average, £1,600 a year worse off since 2010 after inflation, Labour’s analysis shows that the self-employed have been hit particularly hard and that their average incomes have fallen by £2,000 a year. According to the Institute for Fiscal Studies,

“the fall in average living standards was caused primarily by sharp falls in gross earnings and self-employment income.”

We know that the Bank of England’s Monetary Policy Committee has a range of views on the extent to which the growth in self-employment has painted a false picture of the strength of the labour market. We also know from a recent survey by the Resolution Foundation that more than a quarter of those who have become self-employed in the past five years—almost half a million people—would rather have salaried jobs.

It is for those reasons that the shadow Secretaries of State for Business, Innovation and Skills and for Work and Pensions have written to Sir Andrew Dilnot, the chairman of the UK Statistics Authority, to ask him to examine whether new measures are needed to take better account of the earnings of self-employed people. The truth is that they are working harder for less and that many of them are struggling to make ends meet. We must ensure that they get the support that they need.

My hon. Friend the Member for Birmingham, Ladywood set out the Opposition’s concerns about the Bill. The first relates to clauses 1 and 2 and schedule 1, which will simplify the payment of national insurance contributions that are currently paid by monthly direct debit or in six-monthly instalments, so that they will be paid under the self-assessment regime at the end of the tax year. Although that simplified process will be welcomed by many self-employed people, there are concerns that shifting all liability for NICs to the end of the tax year, potentially to be paid in one big lump sum, could be difficult for low-paid workers.

The Chartered Institute of Taxation recommended that the option of monthly direct debit is retained, and the Government’s tax information and impact note also anticipates that

“a small number may want to continue to make Class 2 NIC payments through a regular payment option.”

No such option is referenced in the Bill, however, so it would be helpful if the Minister cleared up that point and said whether there is any intention to include such a measure.

There are also implications for self-employed people who receive universal credit—I say receive, but I mean when, or if, universal credit is ever fully rolled out, given the current timetable. Because under universal credit income is reported net of expenses on a monthly basis, as my hon. Friend the Member for Birmingham, Ladywood said, if income falls below a certain threshold in a given month—the minimum income floor—the claimant’s income is treated as being a higher amount, and they therefore lose some of their universal credit entitlement for that month. NICs and income tax will count as such deductions, and in any one month liability may fall on both of those under self-assessment. That could result in universal credit claimants losing out in that month, which could set them back significantly for a longer period. The Low Incomes Tax Reform group has expressed its concerns that that shift could “spell misery” for some self-employed people, and create a system where

“payments will be made much later and could affect entitlements to benefits in the meantime.”

[Ian Swales]

I am following the hon. Lady’s argument with interest and she is making an excellent point. Does she believe that the annual assessment and payment of class 2 NICs will cause a big problem for people on universal credit? How does she think that could be dealt with? Clearly, it is part of their costs and deductions from income, which will not be known when they are claiming and receiving universal credit.

[Catherine McKinnell]

I think the hon. Gentleman very much agrees with the concerns raised by Labour Members, and I hope that the Minister will have some suggestions on how those potential pitfalls can be addressed. If not now, thought should certainly be given to that before the Committee stage to ensure that the most vulnerable self-employed workers, and those on lowest incomes, are not penalised by the change in processing national insurance contributions. We accept that there are clear benefits to reducing red tape and the administrative burden on self-employed people who would benefit from such a measure, but there are those in a more vulnerable position who could be forced into “misery”, as the Chartered Institute of Taxation puts it well.

There is also an increased administrative burden for those who are self-employed as a result of the introduction of universal credit. They will have to draw up two separate accounts—one for HMRC that they report yearly, and one for the DWP that they report monthly. Perhaps Ministers will provide some much-needed clarity about the provisions that they intend to put in place to support low-paid self-employed people, so that they are not disadvantaged by the Bill.

My hon. Friend the Member for Birmingham, Ladywood mentioned the 25,000 self-employed women who claim maternity allowance each year. Currently, class 2 contributions are the means by which a self-employed earner accesses entitlement to contributory benefits, including the standard rate of maternity allowance. In order to receive that, a self-employed woman must have paid 13 weeks’ of class 2 NICs within the previous 66 weeks. That shifting liability for class 2 NICs to an annual payment to cover the previous 12 months’ liability could mean that they fail to satisfy those criteria and are not able to access the standard rate of maternity allowance. HMRC’s consultation document from July 2013 flags those concerns. It states:

“The Government recognises that the proposals have implications for the way eligibility for”

maternity allowance

“is determined for pregnant self-employed women and will be considering how best to ensure the changes have no adverse impact for the small group who might otherwise be affected.”

Despite the promise of that wider review of maternity allowance eligibility for self-employed women, the Government have settled on what has been described as a “wholly impractical” solution, whereby women must pay their class 2 NICs throughout the year of their own accord before they file their self-assessment returns at the end of the year.

The Bill’s aim is to simplify NICs for the self-employed, but the proposed approach is anything but simple. In fact, it places a much greater burden on some 25,000 pregnant women each year who want to access their entitlement to the standard rate of maternity allowance. The Chartered Institute of Taxation has labelled that approach as “impractical”, and has suggested that a review should be carried out after two years to see what impact it has had on the claims of self-employed women for standard rate maternity allowance. Perhaps the Minister could respond to those concerns. Have the Government considered alternative approaches, and why have they settled on what has been described as an impractical approach for those women who could be affected?

My hon. Friend the Member for Birmingham, Ladywood spoke in depth about the anti-avoidance measures in the Bill, which were debated at some length in the Finance Bill Committee. However, I want to make the general point that the Opposition are committed to anti-tax avoidance measures. We believe strongly that everybody should pay their fair share. That is why we support the measures in the Bill, but what reassurances can the Minister provide for hon. Members that HMRC will be sufficiently resourced in order to implement the measures and the safeguards? My hon. Friend mentioned the demographic challenges that HMRC is likely to face in the coming years, and the challenge of the numbers of those available to ensure that the promised safeguards are put in place. Will the Minister provide reassurances on that? I am sure the matter will be debated at some length in Committee.

To conclude, we have only to look at the Government’s past record on tax avoidance to understand why the Opposition seek those reassurances. The Government have got it wrong in some respects, such as on the UK-Swiss tax deal, and have over-egged their tackling of tax avoidance and the tax gap, which the National Audit Office recently said is almost £2 billion lower than it should have been, and that the Government have mis-stated the situation. Ministers must provide reassurance for hon. Members and for those who are interested in the debate that they have learned those lessons, and that we will not experience tax avoidance in relation to measures in this Bill that the Government are similarly unable to deal with.

Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend for that suggestion, but I think the record is fairly clear whether the OBR looks at it or not. The previous Government left our public finances in a desperate mess and we are continuing to recover from that mess.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

As well as auditing manifestos, we propose that the OBR should be tasked with monitoring and reporting on the Government’s progress on child poverty, including the impact of Budget decisions. Why will not the Government task the OBR with taking on this role? Is it because the Institute for Fiscal Studies predicts that by 2020 almost 1 million more children will be living in relative poverty and almost 1.4 million in absolute poverty?

[Mr Gauke]

Every week, another new task comes from the Labour party for the OBR. Child poverty is down by 300,000. That is the record and those are the numbers that have been produced. We believe that the OBR has had a very good start as an organisation. We value it and believe that it has an important future, and we will not jeopardise it by letting Labour use it for party political games.

Childcare Payments Bill

Catherine McKinnell Excerpts

Monday 14th July 2014 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I want to begin by saying that the Opposition welcome any new investment in child care and any extra support for the millions of hard-pressed people—parents and families—up and down the country who are battling to juggle their work and family lives. We are the party that, in government, set the precedent for investing in early years and supporting the families that needed help the most and, as a result, tackling disadvantage and improving the life chances of children. Of course, those are aims and priorities that all political parties now accept, thanks to the progress that was made in that area under the last Labour Government. Welcome though any support is, however, the Bill still falls far short of the mark when it comes to making up the ground that has been lost under this Conservative-led Government in regard to meeting and furthering those goals.

Since 2010, all parents have seen reduced support, fewer child care places and spiralling child care costs. We know that families up and down the country are struggling with this. Investing in early years and focusing support on those families that needed help the most are among the greatest legacies of the last Labour Government, and those principles are now universally accepted by all parties of government. Under Labour, parents benefited from a range of policies and investments that helped more parents, but particularly single mothers, into work and lifted more children out of poverty. As a result, more children were given a better start in life.

[Charlie Elphicke]

Does the hon. Lady accept that, according to the measure adopted by the previous Labour Government, child poverty actually rose under that Administration, and that it has fallen under this Government?

[Catherine McKinnell]

No, I do not accept that. It is tempting for Government Members to quibble about measures and markers, and I know that a lot of time has been spent arguing about how to measure child poverty instead of recognising the desperate increase in it. The Institute for Fiscal Studies has projected that there will be 1 million more children in poverty by 2015 than there were in 2010. Government Members need to be careful when obsessing and arguing about those measurements while ignoring the reality, which is that hundreds of thousands more children are now living in homes that their parents cannot afford to heat, and struggling in households where their parents cannot afford to put food on the table and are using food banks.

When we look back on Labour’s record in government, we are proud of the introduction of the Sure Start local programmes and the subsequent huge expansion of Sure Start centres up and down the country. We are proud of the free part-time nursery education that we introduced for all three and four-year-olds. We are proud of the more affordable and higher-quality child care that we brought in through the employer-supported child care voucher scheme, and of the child care tax credits and the introduction of the early years curriculum. We are also proud of the increased financial support for families with children, including the introduction of tax credits and the increases in child benefit and maternity pay and grants. Those policies and changes were aimed at giving every child the best possible start in life but, perhaps more importantly, they lifted 1 million children out of relative poverty and more than 2 million children out of absolute poverty.

[Chloe Smith (Norwich North) (Con)]

Does the hon. Lady now recognise measures, then?

[Catherine McKinnell]

I genuinely do not understand the hon. Lady’s intervention. Obviously, we recognise that there are measurements of child poverty. The point I was making was—[Interruption.] No, I did not say that I did not recognise measurements of child poverty; we introduced them. What I find unacceptable is that the Government quibble and argue about how to measure child poverty rather than taking the necessary action to deal with a problem that is staring them in the face—namely, an increasing number of children in poverty. As the IFS concluded in 2011, the reduction in child poverty during the first two terms of the Labour Government was

“by far the largest and most sustained since”

figures began in 1961. As UNICEF pointed out when it compared child poverty levels internationally in 2010,

“without UK Government intervention in the form of cash transfers, tax credits and services for children and families, the UK would see a child poverty rate three times higher than its current levels.”

Government Members seem to be quite vexed about this issue, but I think that that is because they have a shameful record. Unfortunately, the story under this Government has been very different from that under the Labour Government. That is the case despite the promise in the Conservative manifesto in 2010 to

“make Britain the most family-friendly country in Europe”.

It added:

“We will help families with all the pressures they face: the lack of time, money worries, the impact of work, concerns about schools and crime, preventing unhealthy influences, poor housing.”

Let us not forget the Liberal Democrats—I am pleased that one of them is here today. Their 2010 manifesto claimed:

“Liberal Democrats believe every family should get the support it needs to thrive, from help with childcare through to better support for carers and elderly parents. Liberal Democrats will improve life for your family.”

Have those promises been translated into reality? We know that parents are facing a child care crunch because child care costs have spiralled, the number of places has fallen and the support that families receive from the Government has been slashed. One consequence is that progress on reducing child poverty has stalled.

[Hywel Williams]

Does the hon. Lady agree with Plaid Cymru that the answer to the child care problem, particularly in areas where there is little or no provision, is a child care guarantee for all, based on the Nordic model that has operated very successfully in Sweden for a long time? Does she agree that she has a role in persuading her Labour friends in the Welsh Government to adopt that model?

[Catherine McKinnell]

We all want to see more child care places. We recognise not only that there is a challenge in meeting the costs of child care, but that we need to do something on the supply side if we are to see the costs come under control. That is why I will set out exactly how Labour has proposed to deal with that issue. Although we support the measures that are being proposed, despite having quite a number of questions to raise about them, we suggest that there are actions that the Government could take today on the supply side to increase the number of child care places that are available, which has been falling.

[Sarah Newton (Truro and Falmouth) (Con)]

I take issue with what the hon. Lady is saying because of my experiences in my constituency. I have just looked at the data and there are 100,000 more places in nurseries today than there were in 2009. Of course, with that increase in supply, prices are falling.

[Catherine McKinnell]

I do not recognise what the hon. Lady is saying. If she is saying that that is happening in her area, I would be interested to see the data to back that up. We know that 35,000 fewer child care places are available and that prices are rising. Parents out there are struggling with the cost of child care—indeed, the Government accept that it is a challenge for many households up and down the country—and I think that they would find it deeply disconcerting to hear an hon. Member suggest that prices are falling and that everything is fine. Government Members seem to be very detached from the reality that families are facing up and down the country.

[Charlie Elphicke]

Will the hon. Lady tell the House how the number of childminders changed under the previous Government? Does she accept some responsibility for what amounted to a war on childminders by the Labour party?

[Catherine McKinnell]

Perhaps the hon. Gentleman is reading that argument from a Whip’s handout, although I know it is one that Government Members like to quote. The Professional Association for Childcare and Early Years, which I would trust more than I would trust the hon. Gentleman on this subject, has commented specifically on that issue, stating that that statistic has often been quoted in the past few months but it is not one that it recognises. The association does not recognise the statistics that the Government are trying to use to establish the case that Labour let the country down on child care. The reality and experience of households and families up and down the country is that Labour has a proud record of supporting families with children to get into work and with the costs associated with child care, and of ensuring there are enough child care places—certainly not the reduction of 35,000 places that we have seen since the Government took office.

[Charlie Elphicke]

rose—

--- Later in debate ---

[Catherine McKinnell]

Does the hon. Gentleman wish to come back and dispute again what the Professional Association for Childcare and Early Years says?

[Charlie Elphicke]

For clarity, I did not speak from some handout. I have been concerned about this issue for a long time, and I garnered research from the House of Commons Library which sets out the official statistics on numbers of childminders. Those numbers were massively reduced under the previous Government, which caused a lot of difficulties for families that I represent in Dover and Deal who are hard pressed and find it hard to afford more expensive child care options.

[Catherine McKinnell]

Perhaps the hon. Gentleman will look again at his House of Commons Library note and explain in his contribution why we have seen 3,000 fewer childminder places since the Government took office. Overall, there is a worrying trend of reducing child care places and rising child care prices, and he will understand that basic economics mean that households up and down the country are struggling to deal with the cost of child care. Many households—particularly women—are making the choice to stay at home because it is simply unaffordable to go out to work.

The Minister spoke passionately about the increasing number of women in work, but she will acknowledge that there is a lot more work to do on that and we still fall behind on maternal employment in OECD comparisons. We need to make progress on that so that parents who want to work can do so and so that child care is affordable.

[Sarah Newton]

There is no complacency whatsoever on the Government Benches about helping those hard-working families who are struggling with the costs of child care. The hon. Lady asked where I got my numbers from. I have just looked, and the Department for Education website’s annual survey of child care and early years providers clearly shows that the number of child care settings has increased and that prices are coming down, although there is still more work to be done. This is not the first time the Labour party has got the numbers wrong so I am not surprised, but she should have the good grace to acknowledge when she is wrong.

[Catherine McKinnell]

I thank the hon. Lady for her clarification, but we know that over the course of this Parliament we have seen a reduction in the number of child care places and an increase in the price of child care. Part-time nursery prices have risen five times faster than pay, and in the past four years alone in my region in the north-east prices have risen by a staggering 50% for households that are already struggling to make ends meet. The average bill for a part-time nursery place of 25 hours a week has gone up to £107, and the average weekly cost of a full-time place has risen to £200 or more. It is hardly surprising that the Family and Childcare Trust has calculated that families are paying more on average for part-time child care than they spend on their mortgage, with some handing over a staggering £7,500 a year more for child care for two children—around 4.7% more than the average mortgage bill.

[Hywel Williams]

What does the hon. Lady make of the argument put forward by the Institute for Public Policy Research that a similar scheme introduced in Australia led to the doubling of child care costs in 10 years, and that the basic flaw of the scheme is that it is regressive?

[Catherine McKinnell]

The hon. Gentleman raises a very important point. We need reassurance from the Government that they have considered the data from experiences in other parts of the globe. Examples show that dealing only with the demand side, supporting parents with child care costs, simply increases the price of child care for families rather than bringing it down. Ultimately, that costs parents and the Government more, because they end up forking out more for a smaller number of child care places.

There seems to be a huge debate about the figures, but official figures show 35,000 fewer child care places across the country. In my region of the north-east alone, we have lost more than 5,000 places. Even the coalition’s flagship offer for two-year-olds, which is due to be extended in October, has floundered, with the child care Minister, the hon. Member for South West Norfolk (Elizabeth Truss), admitting last November that 38,000 of the 20% most disadvantaged two-year-olds—38,000 out of 130,000—did not have the places to which they were entitled. In May 2014, she updated the House on progress, with 10% of the most disadvantaged two-year-olds still without places. Perhaps most worrying of all is that there are 536 fewer Sure Start children’s centres than there were in 2010—an average loss of three a week. That is the figure we have, but the Minister removed the online database last autumn. Perhaps she will comment on this. I would have thought that, given her professed interest in supporting families and dealing with these issues, there would be a desire to continue to monitor the number of child care and Sure Start places available. It is alarming that we can no longer keep track of the figures on the Government website.

In addition to all that, parents have seen the Conservative Government give a £3 billion tax cut to the top 1% of earners, more than three quarters of whom are men. At the same time, parents have seen cuts of £15 billion. Support to families to balance their work and family life, such as tax credits, child benefit, maternity grant allowances and statutory maternity pay, has been reduced. The reductions to tax credits alone have meant that some families have lost up to £1,560 a year, while the House of Commons Library estimates that families with newborn children could be up to £1,725 worse off over the initial two years.

New analysis of the households below average income statistics published earlier this month shows that under this Government it is families with children who have seen the biggest falls in their income, relative to those without children. Since 2009-10, a couple with two children aged five and 14 are on average £2,132 a year worse off in real terms. In contrast, a couple with no children are £1,404 a year worse off. A single person with two children aged five and 14 is on average £1,664 worse off, compared with a single person with no children, who is £936 a year worse off. We know that everybody is worse off, but families with children in particular are bearing the brunt. These figures only reflect tax and benefit changes, and the impact of wages falling relative to prices has left working people on average £600 a year worse off since 2010.

Even more worrying is that new research published last week by the Resolution Foundation suggests that the official statistics may well have underestimated the fall in living standards, because they take no account of the wages of the self-employed. The fall in wages could be between 20% and 30% greater than originally thought. As we know, this could prove particularly relevant to women’s experiences, because according to the Office for National Statistics, women have made up more than half of the growth in the number of self-employed since 2008.

We must not forget that the true impact of this coalition Government’s failure is felt not just by parents, but by their children. The latest HBAI figures show that the progress Labour made in lifting more than 1 million children out of poverty has ground to a halt. Equally worrying, the number of children living in what is deemed to be material deprivation is on the rise, with 300,000 more children living in families that cannot afford to keep their house warm, 400,000 more children living in families that cannot afford to make savings of £10 a month, and half a million or more families unable to afford to replace broken electrical goods. Worst of all, a forecast by the Institute for Fiscal Studies indicates that while Ministers and, clearly, their Back Benchers squabble over how to adequately define child poverty, which seems to be a distraction from their failure to deal with it, almost 1 million more children will be living in poverty in 2020.

[Charlie Elphicke]

The hon. Lady challenged me on my figures. In a House of Commons Library note, taken from the Department for Education and Skills statistical volume, there were 365,000 childminder places in 1997, but by 2010 that number had fallen to 280,000. Does she recognise that that is a really poor record on child care with childminders?

[Catherine McKinnell]

The hon. Gentleman seems to have gone off the subject of child poverty, which is what we were dealing with. Going back to childminders, there was some movement in respect of the database of those registered when the Ofsted registration system came into place. If he is suggesting that he does not support Ofsted registration, I would be interested to hear more of his views.

[Ms Ritchie]

My hon. Friend talks compellingly about properly funded child care and the growing levels of child poverty, and she is characterising the position well. In that regard and in view of the volatility in the labour market, the slight economic upturn and the number of temporary or freelance-type workers, could she explain how those people will be impacted by the Bill’s provisions? Will they find themselves in a more difficult position?

[Catherine McKinnell]

I thank my hon. Friend for that intervention, which brings us back to the issue of child poverty and the importance of child care in supporting families and particularly children in getting out of that situation. She raises an important point, and I shall be coming on to ask some questions about the Bill’s implementation in that regard. Contrary to the impression given by the Minister, there is still a lack of clarity about who will and will not benefit from the changes. I shall reflect only momentarily, Madam Deputy Speaker, on the wider point that my hon. Friend raises. Our very flexible labour market can make it difficult for many parents to manage their child care arrangements. We know that many women, for example, are subject to zero-hours contracts, which can make it very difficult to plan for child care and the costs and availability of child care, when they might not know what hours they will be working from one week to the next. I hope that the Minister will take all those issues into account, particularly in respect of supporting families, which could be dependent on the interaction between the implementation of this policy and universal credit.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

The hon. Lady mentioned universal credit. Earlier, she was saying how difficult it was to plan for child care. Government Members were surprised that the Leader of the Opposition did not condemn last week’s strikes, because those are exactly the kind of issues that are a nightmare for parents.

[Catherine McKinnell]

I think that the hon. Lady is straying somewhat from the subject of the debate, but I also think that a number of the workers who were involved in Thursday’s strikes were among the very lowest paid, who we know need this child care support and who are struggling to make ends meet. That was one of the motivating factors in the action that they took last week. I therefore do not think that the hon. Lady’s point was entirely irrelevant, but let me now return to the issue that is under discussion, which is child poverty.

There is concern about the fact that much of the progress that has been made has been either halted or, even worse, reversed by the Government’s policies over the last four to five years. The Government are absolutely on track to miss spectacularly their statutory obligations in terms of eradicating child poverty. As their own child poverty adviser Alan Milburn said recently,

“The Government’s approach falls far short of what is needed to reduce, let alone end, child poverty in our country.”

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. I must draw something to the hon. Lady’s attention. Child poverty may be ancillary to the Bill that we are discussing, but she said that the matter before us was child poverty, and it is not; the matter before us is the Bill. However, I am sure that the hon. Lady is illustrating her remarks by referring to child poverty, and that she will soon return to the subject of the Bill.

[Catherine McKinnell]

Indeed, the next sub-heading in my speech is “The Bill”, so thank you, Madam Deputy Speaker. My point was that child poverty was the issue—the issue in front of us—with which I was dealing before I took a number of interventions. That issue is very pertinent, because we know that the provision of affordable child care is one of the key measures that will help children to be lifted out of poverty. We know that enabling parents to go to work and to be in stable, secure employment is the primary way of enabling them to bring their families out of poverty.

Let me reiterate—in the context of today’s debate and the Bill—that we support any Government action that will help families who are struggling with the child care crunch. However, as we know, this additional support does not do nearly enough to make up some of the ground that has been lost over the past four years. For a number of reasons, there is doubt about how effective it will be even when it arrives, in about a year’s time, and about how much better off families will be. The bottom line is this: the Bill confirms that there will be no help for parents who are facing a child care crunch until after the next election, which means that there will be virtually no help with child care for an entire Parliament under the Conservatives and the Liberal Democrats.

[Ben Gummer (Ipswich) (Con)]

I am glad that the hon. Lady has now returned to the issue that is before the House. She has talked about lost ground. In every single year of the previous 13-year Labour Government, child care costs went up. Last year, for the first time, they went down. Where was the lost ground in those two Parliaments?

[Catherine McKinnell]

Of course child care costs will rise with inflation, but we have seen a spiralling increase. Child care costs have risen much faster than wages, and the increase has been much faster than previous increases in terms of the natural economic cycle. When I talk about lost ground, I am talking about the support that is available to families across the board, which we know has been reduced on a range of fronts—not to mention the reduction in the working tax credits and child care tax credits that are available to working parents. I think that, in introducing the Bill, the Government have recognised that they have a problem, namely that there is not enough support out there for working families. We need to ensure that this Government support, although welcome, goes further. We need to ensure that it goes far enough, and is implemented properly. That is the basis of the questions that I now wish to put to the Minister.

[Bridget Phillipson]

Is it not right that before 1997 child care was simply not regarded as an issue worthy of debate in the way that it is now? The action that the Labour Government took over 13 years brought this issue to the fore for the very first time. Previously people who raised this as a matter for Government to deal with were simply laughed at. For the first time, the Labour Government brought this issue to the fore and regarded it as a matter for Government action, not just for families to deal with on their own.

[Catherine McKinnell]

My hon. Friend makes a powerful and important point, and I think we should celebrate on a cross-party basis the fact that we now have consensus that the Government need to take on board this issue and that addressing it can improve the life chances of families, in particular children. That is a huge credit to the last Labour Government who pushed this issue forward and raised it up in terms of political acceptance and cross-party agreement and as an issue that Government cannot simply turn their back on.

None the less we have seen soaring costs, falling numbers of places and cuts in tax credits for thousands of families and, as a result, in 2015 families will be worse off than they were in 2010. Even when the help arrives, it is unclear who exactly will benefit from this scheme, and even then it is unclear how much better off some people will be and many might legitimately ask whether they will actually be better off. In the Government’s original consultation last August, they estimated that 2.5 million working families would be eligible for support under this scheme, but in their revised consultation, set out in the subsequent consultation response in March, that number was reduced to 1.9 million families, and therefore around 2.6 million children. However, the Government estimate that only two thirds of those 1.9 million working families—so, about 1.25 million—will have qualifying child care costs. As far as I can tell, however, Ministers have never properly explained what that crucial difference is, because clauses 1 and 2 of the Bill define qualifying child care based on two criteria—first, whether the child care is provided by a registered and accredited provider, and, secondly, where one of the main reasons for the child care is to enable parents to go to work—but that does not explain why 1.9 million families are eligible, yet only 1.25 million such families have eligible child care costs. In fact, as far as I can tell, the Bill does not specifically refer to qualifying child care costs anywhere. I see the Minister shaking her head and I am sure she would like to clarify this point.

[Nicky Morgan]

First, I said in my speech that qualifying child care costs would be defined in the regulations that have been published today and that, no doubt, we will be discussing in Committee. In relation to the other two points the hon. Lady raised, first I am sure she welcomes the fact that, as part of the announcements in March, we said tax-free child care must be rolled out much more quickly, which partly accounts for the change from 2.5 million to 1.9 million, as we are much better able to estimate because we are rolling it out over a period of 12 months. Secondly, we must appreciate that some families will want child care but it will not be for the purposes of going to work and therefore the taxpayer will not be paying for it. There is also the element of child care having to be Ofsted registered, and, again, many families will decide that they do not want to access formal child care which is Ofsted-registered as they instead have other child care arrangements. Again, that is something the taxpayer is not going to cover at this stage.

[Catherine McKinnell]

I thank the Minister for that clarification, but I am surprised she thinks it is acceptable that on the day we are debating this Bill on Second Reading we should be able to debate these regulations that have only been published today. I am also very surprised by the comments she makes about the timetable. The Government have obviously had to re-consult on this issue so they are far behind their original timetable anyway, so I am not—

[Nicky Morgan]

Will the hon. Lady give way?

[Catherine McKinnell]

In a moment I will. First, I will finish what I am saying, which is that this is far too little, too late, and no child care support is available from this Government for this entire Parliament, but I would be happy for the Minister to correct me on that.

[Nicky Morgan]

The regulations were published today for this Second Reading debate, earlier than might otherwise have been the case, because I wanted the House to be informed. Moreover, the consultation that we have launched in relation to the delivery providers in no way affects the Bill’s timetable. I would not want the hon. Lady to let the House think that the timetable is affected. It certainly is not. We intend that the scheme will be launched and ready for families to access from autumn 2015, as we have always said.

[Catherine McKinnell]

I was referring to the Government’s original timetable that they are already behind on, but I appreciate that it is intended this offer will be implemented in autumn 2015, as she says. We hope that that will be the case. However I do have a number of questions about the implementation. Unfortunately, Ministers have repeatedly refused to set out the specifics of who will be better off and by how much, or whether people will be better off as a result of these measures. I have tabled a series of written parliamentary questions to try to gain clarity on those points, but disappointingly, although not surprisingly, the answers from the Financial Secretary have not been helpful in the slightest. In many cases, the right hon. Lady has simply failed to answer the questions. It would appear from her responses that the Department is simply not aware of what proportion of families paying for child care will benefit from the Bill, how it will benefit different income groups proportionally, and what the average top-up will be per child once the scheme is up and running. It is hard to believe that the Treasury is not in possession of such data. Surely it is fundamental to understanding what the Bill’s impact might be on the Exchequer, and on children and families.

The only indication that we have about how the Bill will impact on different income groups is from work undertaken by the Resolution Foundation, which suggests that the scheme could be skewed towards higher earnings, which might go some way to explain why the Minister has been so unforthcoming with responses to the various questions put.

[Mark Durkan (Foyle) (SDLP)]

On that very point, has my hon. Friend noted that the Family and Childcare Trust has made it clear that the 1.25 million families that will benefit from this, are only about half or slightly over half of those who are paying for child care costs, and 80% of those who will benefit under this measure are in the top 40% of the income distribution?

[Catherine McKinnell]

My hon. Friend raises an important point and puts forward compelling evidence as to why we need to question the details on this. [Interruption.] The Minister says that it is not true, but if it is not true, why is she not forthcoming with the Treasury data on this issue?

As Gavin Kelly, chief executive of the Resolution Foundation, pointed out, the Government’s decision to increase the spending cap is likely to benefit those on the highest incomes, despite the fact that it is low and middle-income families who are struggling the most with the rising costs of child care, for whom it is acting as a barrier to taking on more work. He said:

“About 80 per cent of the gains from this will flow upwards to those in the top half of the income distribution.”

Throughout the Bill’s passage in the House, we will continue to press for some clear, transparent information from Ministers so that parents can be clear about what they can and cannot expect to receive in support. At the moment, the Bill is completely devoid of any of this information.

None the less, despite a lack of answers from the Minister, there is a curious line in the Bill’s impact assessment, which states that, of those families that the Government say will gain as a result of the new scheme,

“the average additional support they will receive is £600 per year”—

£600 per year on average. That stands in complete contrast to the claims of Ministers who have implied that working parents are all in for a £2,000 child care subsidy. Indeed, the Financial Secretary’s own website, summarising her week of activities when she announced this revised child care scheme in March this year, suggested this was the case. She said:

“The new Tax-Free Childcare scheme which I am guiding through Parliament will provide 20 per cent support on childcare costs up to £10,000 per year for each child via a new simple online system. This will mean an average saving of £2,000 a year per child.”

I hope that she will set the record straight on that point, because her Department’s own impact assessment suggests a very different reality.

I would also like to take this opportunity to probe the Minister on the Government’s plans to support 85% of child care costs for all universal credit claimants. Under the Government’s original plans, only those universal credit claimants who paid income tax—the highest earning claimants—would be eligible for 85% of support. Everybody else would be covered for only 70% of costs. We welcomed these changes as they signified a reversal of the Government’s decision to cut the child care element of working tax credit from 80% to 70% in 2011, a move that we opposed because we recognised that it simply served to hit those parents who needed the support the most. But it would seem that this could be yet another example of the coalition Government giving with one hand and taking away with the other.

As Alan Milburn, chairman of the Government’s Social Mobility and Child Poverty Commission, has made absolutely clear, low-income families could still lose out despite the increase in support for those most in need. He told The Independent on Sunday:

“The Government has taken half a step forward. The announcement that 85 per cent of childcare costs will be met under universal credit from 2016 will help work pay for low-income families. This is very welcome. The sting in the tail is that this £200m expansion in childcare support will come from within the universal credit programme. This risks robbing Peter to pay Paul.”

The Minister did not provide any clarity when my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) probed earlier in relation to this, but there needs to be some upfront response. How exactly do the Government intend to pay for this increase in support?

There is another key concern. We now know that the universal credit programme is in complete disarray under the Secretary of State for Work and Pensions, and the Treasury is refusing to sign off on the programme’s business case, and there are concerns that low-income parents may now be waiting until 2017 at the earliest to receive this welcome additional support. Again, I have tabled a number of written parliamentary questions to ascertain whether this will be the case, and, again, disappointingly but perhaps not surprisingly, the Minister has failed to answer any of these questions. I put it to the Minister today: when can the 4 million low-income families who will be eligible for universal credit expect to receive support to cover 85% of their child care costs? [Interruption.] The Minister says she has said it, so will she give a cast-iron guarantee today that they will be in receipt of these payments by 2016? Will she confirm that at the Dispatch Box? No.

[Mark Durkan]

Does my hon. Friend recognise that whereas the new scheme seems to offer up to £2,000 per child, with no limit on the number of children, child care support under universal credit is capped, so anyone with more than two children is effectively losing out when compared with those who benefit from the new scheme? Would child care accounts not be a fairer way in universal credit as in this scheme?

[Catherine McKinnell]

rose—

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. Before the hon. Lady replies to the intervention, I simply draw it to her notice that she has now spoken for 44 minutes, which is more than twice as long as the Minister. I am not stopping the hon. Lady speaking because I appreciate that she is making some very good points and putting questions that have to be put. But before she considers taking other interventions, she might consider that other Members are waiting to speak.

[Catherine McKinnell]

Thank you, Madam Deputy Speaker. I am grateful for your guidance.

The final point I want to make concerns the delivery of this scheme. We are now some 14 to 16 months away from when the scheme should be up and running, according to the Government’s revised timetable, yet the Government still have not made a decision—at least publicly—about who will deliver the child care accounts through which parents will access Government top-ups and pay for child care. They originally announced in their consultation response that National Savings & Investments would be their delivery partner, but after ditching that decision and the preceding consultation process, they have backtracked and reopened the consultation process.

Will the Minister tell us why the Government commissioned a £38,000 cost-benefit analysis report by Economic Insight, which recommended an open, competitive market model for delivering child care accounts, and then simply ignored the report’s recommendations and chose an in-house provider, NS&I, instead? Will she clarify who will be delivering the child care accounts under this in-house option, as it is my understanding that the former Economic Secretary to the Treasury, now Secretary of State for Culture, Media and Sport, awarded a seven-year outsourcing contract to Atos in May 2013 to deliver all customer-facing and back-office services to about 25 million NS&I customers? If the Government continue with the previous plan to have NS&I deliver child care accounts, will the Minister clarify whether it will in fact be Atos delivering them? If that decision is taken, does the Minister plan to renegotiate, or at least revisit, NS&I’s contract with Atos to ascertain whether the company is up to delivering and maintaining accounts to potentially 2 million parents, considering that this would be significantly different from NS&I’s current activities?

[Hywel Williams]

Does the hon. Lady share my concern that National Savings & Investments was only recently held to be in breach of its responsibilities to provide services in Welsh and had to change its services very quickly to conform to its legal requirements? Does that dent her confidence that NS&I might not be able to deliver services to everyone in Wales?

[Catherine McKinnell]

The Government need to reassure us over NS&I’s ability to provide this contract and to tell us whether services will be provided by Atos, especially as Atos’s delivery of universal credit and personal independence payments has been such a shambles. With just a year to go, it is important that Ministers get a grip and make some decisions. As with universal credit, any further delays in implementation will only hurt hard-pressed families who are already struggling with the cost of child care bills.

Let me turn briefly to our proposals for investing in child care which, on top of what the Government are providing today, would deliver a real difference to hard-pressed families who are struggling with the child care crunch. We have said that we will build on previous efforts and extend free child care for three and four-year-olds from 15 to 25 hours a week for working parents. We will give parents peace of mind by setting down in law a guarantee that they can access wrap-around child care—from 8 am to 6 pm— through their local school, if and when they want it.

As with the 15-hour early years entitlement, introduced under the previous Labour Government, the new 25-hour offer would be for 38 weeks of the year, which would mean more than £1,500 of extra support per child per year. It would not demand that working parents spend more and more of their own money on child care in order to receive some cash back from the Government, as this Bill will demand of them. Regardless of what working parents of three and four-years-olds choose to spend on child care, they will be entitled to 25 hours a week for 38 weeks of the year.

We know that having school-age children can be a logistical nightmare for many parents, and that too many of them find it increasingly difficult to find after-school and before-school child care. According to a Department for Education survey last year, 62% of parents of school-age children said that they needed some form of before-and-after school care or holiday care to combine family and work, but of these, nearly three out of 10 of them were unable to find it. That is why Labour will introduce a primary child care guarantee to benefit parents of primary age children, because that is when families most require child care support.

[Charlie Elphicke]

rose—

[Catherine McKinnell]

I will not give way, as I must make progress.

In conclusion, while we welcome any extra investment in child care, the Bill does not make up for how much more families are paying for child care under this Tory-led Government, and it confirms that no help will arrive for parents facing a child care crunch for at least another 14 months. Families have already seen their child care costs rise five times faster than pay. Many already spend more on their child care than on their mortgage. Parents have seen the number of child care places fall by the thousands, and, despite the Prime Minister’s promises to the contrary, too many communities have seen their local Sure Start children’s centres close.

Most stay-at-home mums, as well as working parents, have already said that child care costs are the biggest barriers to their either going back to work or increasing their hours. Working parents and families need help now, not in 14 months’ time. But equally importantly, Ministers need to come clean over who will benefit from this scheme and by how much, so that parents can make an informed decision about which form of support will be most appropriate for them.

We will support the Bill’s Second Reading as we welcome the additional support for families because we know how much they are struggling, but we will scrutinise every detail to get the answers to the questions that we put today, as there are many areas in which the Government are not being up front. Critically, this Bill falls far short of what is needed to make up for the last four years of spiralling costs, falling child care places and cuts to vital support for families. Parents deserve better than that, which is why the next Labour Government will extend free child care for all three and four-year-olds as well as introducing a primary child care guarantee to give parents peace of mind.

Finance Bill

Catherine McKinnell Excerpts

Wednesday 2nd July 2014 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I beg to move, That the clause be read a Second time.

New clause 10 takes us back to 2010 and the heady first few months of this Government. It takes us back to a time when the coalition, having inherited a growing economy from the Labour Government, choked that recovery off by adopting an anti-growth, short-termist, short-sighted approach to supporting business and jobs. As hon. Members will be aware, one of the Chancellor’s first moves in government was to announce in the June 2010 Budget that he was cutting Labour’s annual investment allowance. The new clause asks the Government to undertake a proper review of the impact on business investment of that terrible decision. We need to learn the lessons from that dreadful mistake.

Before we consider the new clause in more detail I want to remind hon. Members of the background to this important issue. The annual investment allowance was announced as part of the 2007 Budget by the former Chancellor of the Exchequer, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It was introduced as part of a package of reforms to enhance Britain’s international competitiveness, encourage investment and promote innovation and growth. The new allowance replaced first-year capital allowances and meant that from April 2008, under the Labour Government, businesses were able to offset up to 100% of expenditure on general plant and machinery in any given year against taxable profits, up to a limit of £50,000.

We recognised the value of this important allowance to companies up and down the country in supporting them to invest for the long term, and in helping them to create and safeguard jobs. That is why Labour took the decision to double it as part of a series of measures announced in the March 2010 Budget—in order to

“support start-ups and small and medium sized enterprises…to position the UK as a leading centre for research and innovation, and to ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy.”

The March 2010 Red Book stated:

“In order to provide further cash flow support and an incentive to increase business investment, the Government will increase the threshold of the AIA to £100,000 for expenditure incurred from April 2010.”

That announcement was hugely welcome to businesses up and down the country.

[Charlie Elphicke (Dover) (Con)]

Will the hon. Lady say what the allowance is today—is it £100,000 or has it gone up?

[Catherine McKinnell]

We are still at 2010; we will get to the present day in due course, but the hon. Gentleman seems to miss the point somewhat. Obviously, the Conservative party would like to airbrush out the unpleasant blip in 2010, when it almost abolished the investment allowance, and all the impacts that flowed from that, which were evident from the fall in business investment. That is the point that our new clause reinforces. The decision taken at that time was terrible. I do not know what the thinking was behind it—whether it had been planned for a long time by the Conservatives while they were in opposition, or whether it was simply a case of spitefully thinking, “It’s a Labour policy, so we will reverse it”—but it had catastrophic implications. As the hon. Gentleman’s question indicates, they had to think again.

[Sheila Gilmore]

I am sure that my hon. Friend, like me, welcomes the Government’s conversion and the way in which they have changed their policy. However, it is reasonable for us to question why the original decision was taken.

[Catherine McKinnell]

We can only speculate on what on earth was going through the Chancellor’s mind when he slashed an incentive that was clearly supporting those businesses in the very manufacturing industries that he claims to champion in making long-term investments, and creating and safeguarding the jobs that we need so desperately.

[Mr Gauke]

This policy was part of a package that included a significant reduction in corporation tax rates, which more than offset any impact on investment from the changes to the annual investment allowance. The Labour party has made it clear that it would increase corporation tax. This week, it has set out its test, which is to have the lowest corporation tax rate in the G7. That would enable a future Labour Government to increase corporation tax to 26%. Will she rule out a Labour Government increasing corporation tax to 26%?

[Catherine McKinnell]

Once again, Conservative Members, and indeed the Minister, want to brush over this inconvenient part of their so-called plan. They clearly made a bad decision in 2010. The purpose of the new clause is to show that. If the reduction in the annual investment allowance was offset by the reduction in corporation tax, as the Minister argues, why did they revisit the decision and increase the allowance again? That would not have been necessary if their only plan for supporting business up and down the country, which was to reduce corporation tax, had been successful. We supported that plan, but it was not enough on its own to offset the damaging uncertainty created by slashing the annual investment allowance from £100,000 to £25,000 in one fell swoop.

[Charlie Elphicke]

Will the hon. Lady rule out an increase in corporation tax under the next Labour Government, should one ever be elected—yes or no?

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

We are not discussing that.

[Catherine McKinnell]

My hon. Friend makes a fair point: that is not what we are discussing. However, I am interested to know whether the hon. Gentleman will rule out slashing the annual investment allowance with no notice if the Conservatives are re-elected in 2015. Will he confirm that—yes or no?

[Charlie Elphicke]

I hate to disappoint the hon. Lady, but I am not part of the Government. It is not for me, a Back Bencher, to rule anything in or out. I am proud that the Government have set the annual investment allowance at £250,000 and have massively reduced corporation tax. That is really great for business.

--- Later in debate ---

[Catherine McKinnell]

The hon. Gentleman is obviously not able to rule in or rule out any slashing of the annual investment allowance, but we have had so much chopping and changing that there is major uncertainty over whether the Chancellor and other Conservative Ministers have a sensible approach to investment. It is as though they do not understand that chopping and changing—slashing the annual investment allowance from £100,000 to £25,000 and then increasing it again—is the worst approach if we are trying to encourage business investment in this country. That is the kind of uncertainty that we have seen under this Government. Although the hon. Gentleman cannot rule anything in or out, I am interested to hear whether the Minister will rule out any further chopping or changing on this policy.

[Gordon Birtwistle (Burnley) (LD)]

I am in favour of capital allowances. I had an engineering company, and we believed that the Government should support successful engineering and manufacturing companies. Does the hon. Lady accept that a capital allowance of £50,000 on its own is not enough to encourage growth in the economy? Under the Labour Government, from 2007 onwards, GDP went down by 7% in the manufacturing sector, and probably by even more in some manufacturing sectors. I accept that we should have capital allowances, but they should be linked to other things. Does she agree with that?

[Catherine McKinnell]

That is very much the point that I was making and that we have made all along. We had a financial crisis in 2008, and the Labour Government did everything that could be done in those difficult times to support businesses in order to maintain investment levels, safeguard jobs and lay the foundations for the jobs of the future. That is why Labour decided to bring in the investment allowance, and then to double it in the Budget in March 2010. We knew that businesses needed certainty at that difficult time in the economic cycle to make investment decisions. That proved successful.

The U-turn by this Government was not quick enough. We called for it in every Finance Bill. Their eventual U-turn proved that the annual investment allowance was a successful policy, because they recognised that it needed to be reinstated. We have had these debates many times. We have supported the reductions in the corporation tax rate as part of a package of measures to support investment, jobs and growth. Unfortunately, the Government thought that corporation tax rates would do the job on their own. That is why they decided to slash the investment allowance, and to put all their eggs in one basket—the corporation tax basket. We have made it clear that we support a competitive rate within the G7 and the current rate, in order to provide the competitiveness that will create jobs and growth. The hon. Member for Burnley (Gordon Birtwistle) is right that that has to be part of a package of measures.

One key issue that businesses always raise is certainty. In chopping and changing this policy, the Government have undermined the certainty that is needed to give businesses the confidence to invest for the future.

[Mr Gauke]

Will the hon. Lady give way?

[Catherine McKinnell]

I will give way again, but I hope that it is in order for the Minister to confirm that the Tory party will rule out any further chopping and changing on the annual investment allowance.

--- Later in debate ---

[Madam Deputy Speaker (Dame Dawn Primarolo)]

Order. As interesting as some Members might find the debate on corporation tax and the future policy, that is not the subject of the new clause that we are discussing. Although the subject is linked to the question of allowances, it is not the substantive point. I would be grateful if Members addressed their remarks mainly to the new clause. They may use supporting arguments, but they must not allow those supporting arguments to become the only things that are debated.

[Catherine McKinnell]

Thank you, Madam Deputy Speaker, for your sage guidance. I agree that the Minister appears to be diverting the discussion away from the issue of concern: the Government’s approach to the annual investment allowance, which is the subject of the new clause. It calls for a review of the impact of the Government’s decisions on the allowance. He seems very reluctant to address that issue.

[Mr Robinson]

Strictly on the annual investment allowance, is my hon. Friend not absolutely on the button when she says that the question under discussion is not corporation tax or anything of the kind, but rather the AIA and the strictly temporary nature of the Government’s increase and extension of it? Will the Government commit to extending the AIA beyond the election, or is this just another election ploy?

[Catherine McKinnell]

My hon. Friend raises an important point, and that is the first time we have heard a Government Minister confirm that this is a temporary measure. I think that reinforces the argument in the new clause, which is that we should analyse the impact of the various changes to the AIA, year on year—it has gone up, down and all around—on businesses and their investment decisions. Hopefully, that will inform any decisions on the allowance, whether by a future Conservative Government or, as is more likely, a future Labour Government.

[Charlie Elphicke]

The temporary nature of the investment allowance is clearly set out in a press release issued on 1 January 2013, and I am staggered that the hon. Lady says this is the first time she knew about it. The Labour party ought to brief itself better than that.

[Catherine McKinnell]

Well, it simply reinforces the impression—in fact, the reality—that the Government are perfectly well disposed to chopping and changing their policy and approach to the annual investment allowance. That is the point we are trying to make, and the point behind the new clause. The Government should stop and take a look. I have heard from businesses that they would rather have no investment allowance than have chopping and changing of the AIA, because that can be destabilising for investment decisions. They would rather have a more stable approach to policy making than that being displayed by the Government.

Returning to the history of the investment allowance, the previous Labour Government doubled it, recognising its importance to giving businesses confidence to invest for the future, and to be supported within the tax system to make such decisions. What happened after it was doubled? We know that, in his infinite wisdom, the Chancellor decided as part of his emergency Budget—or so he called it—in June 2010, to announce to great fanfare that the annual investment allowance would be cut. However, it would not just be cut. At a time when the economy was growing after the financial crisis, the Chancellor decided that the best way to secure the recovery and back British businesses and jobs was to slash the annual investment allowance to just £25,000 from April 2012, as in the Finance Act 2011. He sought to reassure us that the impact of that reduction from £100,000 to £25,000 would be limited because:

“Over 95% of businesses will continue to have all their qualifying plant and machinery expenditure fully covered by this relief.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. HMRC’s tax information note at the time stated:

“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”

It went on to clarify that

“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”.

Therefore, in the Chancellor’s terms, only 5% of businesses would have been affected by his decision to slash the allowance. In anyone else’s terms, however, that is somewhere between 100,000 and 200,000 firms. That is a significant number of businesses that are employing—or potentially employing—a significant number of people, while also indirectly supporting employment through their supply chains. That seems to ring true of the Government’s approach because when they speak about being pro-business, they seem to forget the many businesses out there that do not fit the Tory vision of what businesses are, and it seems that those 100,000 or 200,000 firms did not feature on the Chancellor’s radar.

Let us remind ourselves briefly of some of the views expressed at the time about the decision the Chancellor took. The independent Institute for Fiscal Studies commented that losers from the cut

“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply to more firms in the manufacturing and transport sectors, it may also be true for some capital intensive service sector firms.”

A senior economist at the manufacturers association, the Engineering Employers Federation, said that financing cuts to corporation tax by

“cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”

In evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation and now director of the Office of Tax Simplification, expressed his concern that the measure would particularly hit medium-sized firms.

The June 2010 Budget cut the annual investment allowance to £25,000 from April 2012 on the grounds that, in the Chancellor’s view, only 5% of firms would be affected. We then had two autumn statements and two Budgets, at which we put these arguments to the Government, before the Chancellor announced in the autumn statement 2012, again to great fanfare, that he would “temporarily” increase the AIA—the one he had just cut to £25,000—to £250,000 from January 2013.

What happened to business investment between the June 2010 Budget and the 2012 autumn statement that drove the Chancellor to move from feeling perfectly comfortable in slashing the annual investment allowance, because more than 95% of businesses would be unaffected, to announcing in 2012 a significant increase in the AIA to £250,000? Let us cast our minds back to what the Chancellor said when he announced that decision in autumn 2012. He said he was increasing the annual investment allowance because:

“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

What exactly does that say about the Chancellor’s cavalier approach back in 2010? Surely the complete opposite—[Interruption.] I see Government Members rolling their eyes, but unfortunately they need to face the truth.

[Dr Thérèse Coffey]

The hon. Lady is right—I should not roll my eyes; I should get up and engage in debate. We know about the note left by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne): “There is no money left”. Since then, the Office for National Statistics has confirmed that the recession was even deeper than expected. The Government made choices at the time, and there was a clear intention to start to reduce the rate of corporation tax in the grand fiscal regime. Nevertheless, there has certainly been a successful demonstration of industrial strategy, and many more millions of jobs are now being created. It is right that we put our backing behind reinvestment in capital allowances.

[Catherine McKinnell]

It is a little desperate to try to justify what is proven to have been a flawed decision-making process back in 2010. By the Chancellor’s own accounts, the measure was a huge blow to all those businesses that aspire to grow, invest for the long term and create jobs.

[Sheila Gilmore]

Does my hon. Friend agree that it seems odd to suggest that the chopping and changing was due to a sudden discovery that the economy was improving? The decision, in effect, to reintroduce the allowance was taken in 2012, when growth was extremely low. It would appear from these plans that, having declared an intention to increase the allowance briefly to £500,000 for one year only, it could drop down to £25,000 in January 2016. What kind of investment planning are companies able to do on that basis?

--- Later in debate ---

[Catherine McKinnell]

As ever, my hon. Friend makes an insightful intervention and raises the key question. The Government need to take a step back and look at the impact their decision-making is having on businesses and their ability to make the long-term decisions necessary to secure the jobs, economic growth and the rebalancing of the economy that we all wish to see.

The Chancellor and his Treasury Ministers cannot have it both ways: either the annual investment allowance supports growth and the creation of jobs or it does not. Labour welcomed the decision to increase the allowance from January 2013 to £250,000, because we know it is important to support business growth and to foster long-term investment. However, we are concerned—this is why we have tabled new clause 10—about the Chancellor’s erratic and, frankly, bizarre approach to this important issue. Slashing the allowance from £100,000 to £25,000 and then announcing that they would temporarily increase it to £250,000, all in the space of just two and a half years, does not, and did not, inspire confidence in the Government’s long-term approach and strategy for supporting growth and investment.

[Gordon Birtwistle]

As I said, I fully support any funding that goes into capital allowances, but we have to remember that in 2010 companies were not making much profit. They were mainly on their knees from the recession that had been created previously. Companies can only set their allowance against profit, so if they are not making a profit there is no allowance to claim. The Inland Revenue was probably right to say that only 5% of companies were taking it up, because we were coming out of recession. A lot more companies are now busy working hard and making a profit, so the capital allowance is more beneficial to them as they are getting it back against the tax that they are paying now that they were not paying in 2010.

[Catherine McKinnell]

I know the hon. Gentleman’s interest in this issue is sincere. The Treasury may or may not have been right in its assessment that only 5% of businesses would be affected, but that is still 100,000 to 200,000 businesses—not to mention the supply chain. The new clause seeks an assessment of the impact of the decision taken at the time. How much of an impact did it have?

The hon. Gentleman says that, as we come out of recession, some businesses will be making more profit and will therefore be able to make more use of the annual investment allowance. That was exactly the point of bringing in the allowance in 2010. We had been through a global financial crisis and we knew that many businesses would be very uneasy about making the sort of long-term financial investments, on which they would not see a return immediately, that are necessary to create jobs. The intention of introducing and doubling the allowance in 2010 was to give businesses the confidence to invest. We know that it was welcomed by business at the time and we know that this Government’s decision to slash it to £25,000 was abhorrent to many businesses, particularly in the manufacturing sector. They needed the support and confidence to make the investments that we need to start seeing the benefits of now.

[Gordon Birtwistle]

The hon. Lady is being very generous. Does she accept that if a company is not making a profit, it will not have the capital resources to purchase the assets against which they can get the capital allowance? What is the point of the Chancellor making it available if companies, which are coming out of recession and really struggling with cash flow, will not be able to find the cash to buy the assets to claim the allowance against? Surely it is better saving it until companies are beginning to make cash profits. They can then buy the assets to improve the profitability of the company and claim the asset back.

[Catherine McKinnell]

I think the hon. Gentleman is rather confused. The purpose of the allowance is to enable companies to invest and to take advantage of tax support. If they are not able to take advantage of the annual investment allowance, there is no cost to the taxpayer, so why chop and change the regime and create uncertainty? Businesses need, from one year to the next, to be able to project and say, “This year we cannot afford to make an investment, but next year we can afford to invest so much in plant and machinery and we will be able to offset so much of that against tax.” The Government, however, have been chopping and changing the allowance. Companies cannot make long-term investment decisions from one year to the next without knowing exactly what their tax position will be.

The hon. Gentleman is actually making a very good argument for new clause 10 and I will be very surprised if he does not support us in the Lobby this afternoon. He speculates on companies that may or may not be able to invest and take advantage of the annual investment allowance. Our new clause asks the Government to undertake a proper review of the impact of slashing the annual investment allowance and then increasing it on a temporary basis. Many businesses have said to me—I am sure they have said it to the hon. Gentleman—that it is that uncertainty that creates the difficult environment for businesses to invest. They do not know, from one year to the next, what any tax allowance might be. We want to get to the bottom of that, so the mistakes the Chancellor made in 2010 will not be repeated.

Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced at the 2012 autumn statement:

“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years, the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem”.

Hon. Members do not need to take it from me, but from a whole range of sources who have raised this as a concern. The Institute of Chartered Accountants in England and Wales welcomed the increase to the allowance, but said:

“We are less enthusiastic about the frequency of the change to this amount.”

Let me be clear, the Opposition welcomed the 2013 increase in the annual investment allowance to £250,000, but we share the very serious concerns about the extremely complex manner in which that was implemented. As hon. Members may be aware, many organisations and individual businesses raised concerns that the increase to £250,000 would run from January 2013 to January 2015, rather than over companies’ usual accounting periods, making it problematic for firms, particularly small ones, to administer. Indeed, as the Association of Taxation Technicians neatly put it at the time,

“the chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses.”

The Opposition also welcomed the Chancellor’s announcement in Budget 2014 to extend the period of the temporary increase to 31 December 2015, with the allowance being temporarily increased again to £500,000 from April 2014. The straight fact, however, is that the Chancellor and his Government have tied themselves in knots over this vital issue. Just last year, when we considered in Committee what is now the Finance Act 2013, the then Economic Secretary to the Treasury, the Secretary of State for Culture, Media and Sport, the right hon. Member for Bromsgrove (Sajid Javid), explained why the increase in the allowance to £250,000 from January 2013 would be a temporary measure only. He said:

“We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent.”––[Official Report, Finance Public Bill Committee, 16 May 2013; c. 145.]

A matter of months later, at Budget 2014, the Chancellor decided to about-turn once again, and extended and temporarily increased the annual investment allowance further—before, presumably, he intended it to return to £25,000 from 1 January 2016. As the Chartered Institute of Taxation put it so well, the one thing businesses need most, particularly in challenging economic times, is certainty. They need long-term stability and predictability to give them the confidence to invest, to make plans for the future and to take on more staff. What they have got from this Government, however, is a continual chopping and changing, with U-turn after U-turn and what seems to be a complete lack of strategic thinking.

What we need to hear from the Minister today is confirmation that the Treasury and his Government have taken seriously the impact of their decisions on business confidence, investment and jobs. We need to know that they have learned from the Chancellor’s mistake back in 2010, and that they will properly review its impact to ensure that the same mistake is not made again.

What assessment has the Minister made of the number of businesses that were not able to grow after the annual investment allowance was slashed? How many jobs could have been created during the last three years of flatlining growth while we have undergone the slowest recovery for 100 years? How many households could have been better off as a consequence, but will find themselves worse off in 2015 than they were back in 2010? Let us not forget that in 2010, back when the Chancellor was slashing the annual investment allowance, he said that the economy would have grown by 9.25% by now. Instead, it has grown by just 4.6%—far slower than in the United States or Germany. Indeed, GDP growth this year is still expected to be lower than the Office for Budget Responsibility forecast in 2010.

On Monday, my right hon. Friend the shadow Chancellor made an important speech about Labour’s approach to developing a business tax system that promotes long-term investment, supports enterprise and innovation and, most importantly, provides a stable and predictable policy framework for business, which is founded on fairness. Yesterday, my right hon. Friend, the Leader of the Opposition set out how a future Labour Government will mend Britain’s fractured economy and develop a genuinely long-term approach to backing growth in every part of this country to ensure rising prosperity for all.

It is this long-term approach to growth and backing Britain’s business and jobs that has been so lacking from this Government, and nothing illustrates it better than their shambolic and chaotic approach to the annual investment allowance since 2010. For that reason, I urge hon. and right hon. Members to back new clause 10 this afternoon, to ensure that the Government understand the impact of the Chancellor’s dreadful decision making back in 2010, and that they do not make the same mistakes ever again.

[Charlie Elphicke]

This new clause highlights two problems relating to its proposers and their party. The first is that they are stuck in the past. They have talked about the past and completely failed to set out their case for the future and the kind of Britain they would like to create. They just want to talk about something that happened previously. This is another one of the instrumentalised nuggets of attack, policy and press strategies referred to by Labour’s head of policy.

[Catherine McKinnell]

Let me correct the hon. Gentleman. He seems not to have been paying attention to my final comments, which were very much about Labour’s strategy for boosting economic growth and sustaining long-term economic stability for the future. The purpose of new clause 10 is to reflect back on past mistakes, of which we believe the Government need to take account.

[Charlie Elphicke]

Let us be clear what we are talking about. Labour and the hon. Lady want to spend two hours of the time available to debate this Bill talking about a period of nine months that happened nearly two years ago. In 2008, Labour introduced the annual investment allowance—an interesting point to which I shall return. It was set first at £50,000; then raised to £100,000; in April 2012, it was reduced to £25,000, which lasted nine months until January 2013, when it went up to £250,000—a far greater amount than under the legacy left by Labour.

[Catherine McKinnell]

rose—

[Charlie Elphicke]

Let me develop my point, and I shall give way again in a few moments.

It is important and instructive that this Government have incentivised investment. What the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) did not develop during the debate is what underpins the whole issue of investment allowances and capital allowances. Why we need capital allowances takes us to the whole issue of business investment. The challenge we all face, and have done for a very long time, is the rising corporate cash balances—about £750 billion—and the desire of us all to see that money spent.

Let us look at the Government’s policy in this area. They initially announced a reduction to £25,000 from April 2012. The hon. Lady’s first argument was that that created some form of uncertainty. The traditional argument goes, “We need to give businesses time to plan ahead; otherwise, we create uncertainty.” Well, the reduction was part of the June 2010 Budget, and it was about two years after the policy was announced before it came into effect, so I do not think that the certainty argument succeeds. The Government increased the amount substantially after only a short period of time, highlighting their concern to ensure investment.

The second problem I have with the hon. Lady’s case is that it is high risk to consider a policy on setting an investment allowance or a capital allowance on its own, as the Minister argued in an intervention. It is instructive that when Labour introduced the investment allowance, they funded the initial £50,000 by reducing general capital allowances from 25% to 20%. All policies need to be seen in a package taken together; they cannot properly be considered and debated unless the other pieces in the jigsaw are taken into account.

--- Later in debate ---

[Mr Gauke]

My hon. Friend raises an interesting point, which I could spend some time discussing. Some challenges are involved in reducing corporation tax below 20% in terms of ensuring that such a tax cut is well focused in encouraging increased investment. He will be aware of some of the difficulties that occurred when the previous Government temporarily introduced a 0% corporation tax rate for smaller businesses; that resulted in quite a lot of tax-motivated incorporation. I will not detain the House for long on this point, so I will just say that some issues would need to be addressed in respect of that.

What would certainly be damaging would be to reverse the considerable progress we have made on reducing corporation tax. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) placed great emphasis on providing certainty for businesses, and I would agree on that, but what we have done in reducing the corporation tax rate from 28% to 21%, and then to 20% as of next April, has undoubtedly helped the UK’s competitiveness position. One could quote survey after survey demonstrating that the UK is now viewed much more favourably as a place in which to do business because of our corporate tax regime, and it would be damaging were we to reverse this. Labour is on the record as wanting to put corporation tax back up to 21%. That would be the first increase, as a revenue raiser, in corporation tax since the 1960s, and we have heard a significant hint this week that Labour may even increase it to 26%.

[Catherine McKinnell]

rose—

[Mr Gauke]

I hope that is not the case and I am delighted to give Labour’s Front Bencher an opportunity to put an end to such suggestions.

[Catherine McKinnell]

Once again, the Minister is trying to change the subject from the annual investment allowance to corporation tax. Given that he acknowledges the importance of certainty in this area and that a reduction of the AIA back down to £25,000 is already on the horizon, does he accept that it would be beneficial for the Government, for Members of this House and for members of the public to have an assessment of the impact of that slashing to £25,000 in 2010, in order to inform the Government’s decision making in the future?

[Mr Gauke]

That is the fourth opportunity the hon. Lady has had to provide some reassurance to businesses and investors looking to the UK as a place in which to do business that a future Labour Government, should that misfortune occur, would not increase corporation tax to 26%. That is the fourth time she has ducked that opportunity. Corporation tax is linked very heavily with the annual investment allowance; they are not separate issues. If our debate is about ensuring that we have certainty for investment in the UK, it is a very salient point.

--- Later in debate ---

[Mr Gauke]

The point I was making is that it was this Government who introduced a corporate tax road map in 2010. That road map has provided a great deal of certainty to businesses and set out our plans for corporation tax. Given that we have been able to make progress with corporation tax rates in the current circumstances, although businesses feel uncertain about the challenges that lie ahead, including the referendum in Scotland and the possibility that an anti-business Government might be elected at the next general election, it would be helpful to have an annual investment allowance in place.

[Catherine McKinnell]

The Minister seems to be completely obsessed with corporation tax. Whatever question is put to him about annual investment allowances, he responds with an answer on corporation tax. I wonder whether that reinforces our call for the Government to be forced to look at the issue of annual investment allowances—the chopping and changing of them, and the lack of certainty—so that they address AIA as a serious issue that concerns businesses up and down the country.

[Mr Gauke]

The hon. Lady does not seem to recognise that there is a link between the annual investment allowance and corporation tax; it is an allowance set off against corporation tax. The two are not separate subjects. Of course, if we are discussing certainty within our tax system, one has to look at the bigger picture, and this Government, through the corporate tax road map, have provided much greater certainty for businesses in this country. The biggest threat to the certainty of our tax system at the moment appears to be a Labour party that is at least considering increasing corporation tax to 26%, which would be a huge increase and deeply damaging for the UK’s competitiveness.

--- Later in debate ---

[Mr Gauke]

Let me summarise the hon. Gentleman’s position: when the economy grows under a Labour Government, the Labour Government get the credit, but when it shrinks under a Labour Government, that is to do with international factors. At least we know where he stands.

We have heard a lot of criticism of the reduction in the annual investment allowance, and I have attempted to try to put that in the context of what we have generally done within our tax system. The impression given by the hon. Member for Newcastle upon Tyne North at all times was that it was a disastrous decision that resulted in business investment being slashed. I do not accept that position at all, and I have made it clear, by putting this in the context of what we are doing with corporation tax, that we are encouraging investment.

Just this week, the Labour party set out its plans for business tax. As far as I am aware, nothing was said in those plans about the annual investment allowance, or about extending the increase to £500,000 beyond December 2015. We heard a lot about an allowance for corporate equity, but I do not think that I heard anything at all from the Opposition on this subject. If it is so important to them, why do they not have a policy in this area? Indeed, at one point, it seemed to come as a surprise to the hon. Member for Newcastle upon Tyne North that this was a temporary measure, although subsequently in her speech it became clear that she was aware of that. What is Labour’s position? If Labour Members feel so strongly about this issue and it is a priority for them, why have they said nothing on the subject? On that point, I urge the House to reject new clause 10 if it is put to a vote.

[Catherine McKinnell]

It is absolutely clear that the Government have tied themselves in knots over the annual investment allowance. They have tried at every turn during this debate to change the subject, and not to deal with the catastrophic decision taken in Budget 2010 to slash the investment allowance from £100,000 to £25,000. That was followed by a welcome U-turn that moved it back up to £250,000, and now they have promised to double it to £500,000. I accept that it is a temporary measure, but the point that I was trying to make, which the Minister seems to have missed, is that the very fact that it is a temporary measure perpetuates the uncertainty, and we know, because businesses have told us, that that uncertainty undermines their confidence to invest.

The hon. Member for Burnley (Gordon Birtwistle) made a speech that I know was sincere, as he is aware of the importance of the manufacturing industry and of certainty in the tax landscape, particularly regarding the annual investment allowance, in enabling businesses to make investment decisions, to invest in plant and machinery, and to expand to create jobs for the future. However, I might also say that he made a typical Liberal Democrat speech, in that he sat on the fence and would not acknowledge that the Government need to take stock of the impact on investment decisions of chopping and changing this policy.

[Ian Swales]

rose—

[Catherine McKinnell]

I give way to another fence-sitting Liberal Democrat.

[Ian Swales]

I thank the hon. Lady for giving way, and she will be pleased to know that I will not sit on the fence on this issue. Investment decisions about plant and machinery are one-off decisions, and the annual investment allowance is only needed once for each investment decision. What we need is certainty around a specific decision, not long-term certainty.

[Catherine McKinnell]

That flies in the face of the advice given by the EEF, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, which all feel that the Government’s chopping and changing on this policy has been damaging to investment. Someone might want to make a decision to invest this year, next year, or the year after, but obviously if they do not know what the Government’s policy will be in 12 or 24 months’ time, they might well not have that confidence and not take that decision. The hon. Member for Burnley acknowledged that, but the hon. Member for Redcar (Ian Swales) seems to be completely at odds with what industry has been saying.

[Mr Gauke]

The hon. Lady says that her concern is that business will not know where it stands on the annual investment allowance when making decisions, but, much more importantly, if a business does not know whether the corporation tax rate will be 20%, 21% or 26%, that will surely have a much bigger effect on investment in this country. Can she provide some clarity on that?

[Catherine McKinnell]

I agree that business needs certainty about taxation to make investment decisions, and that is why we have committed to maintaining one of the most competitive tax rates in the G7, but today’s theme seems to be that the Government wish to talk only about corporation tax, and to airbrush out their catastrophic mistakes with the annual investment allowance. The hon. Member for Dover (Charlie Elphicke) made a valiant speech, but I felt it was dreadfully misguided. He was in quite a bit of trouble trying to defend the Government’s record in this respect, but frankly the decision making has been erratic and completely indefensible.

I pay tribute to my hon. Friend the Member for Coventry North West (Mr Robinson), who made a very thoughtful and considered speech in which he set in the historical pre-2010 context some of the rationale behind the Government’s decision making in this regard, but he also highlighted the irrational aspects.

--- Later in debate ---

[Sheila Gilmore]

Does my hon. Friend want to reflect on the suggestion made earlier that it did not really matter to people whether the investment allowance was clear? Surely, when putting forward a formal business plan, people are not necessarily just working on a year-to-year basis; they want to know what, if things go on as they are, they could do in a year’s time, two years’ time, or three years’ time.

[Catherine McKinnell]

My hon. Friend makes an absolutely valid point. Businesses do not work in electoral cycles or annual tax return cycles; they plan for the future. Businesses have told us how unhappy they have been with the chopping and changing of this policy.

I am very surprised that the hon. Member for Redcar takes such a strong stance in supporting what has clearly been a disastrous Government policy. I would have thought he would have liked to distance himself from it, but he has obviously tied himself to this mast, and I am disappointed that he will not come through the Lobby with us. We will push our new clause to a vote, because we believe that the Government need to take stock and learn from their mistakes, and that this has been an absolute disaster of a policy, in terms of the Chancellor’s indecision.

Question put, That the clause be read a Second time.

--- Later in debate ---

I urge the House to support the amendments, new clauses and new schedules.

[Catherine McKinnell]

I thank the Minister for introducing the 60 or so proposals that the Government have tabled for consideration at the end of proceedings on the Finance Bill. [Interruption.] I hear some tutting behind me. The House will be relieved to hear that although I have a number of questions they relate mainly to new clauses 1, 5 and 6, new schedule 4 and amendment 2.

I will start with new clause 1. It is important to take the opportunity to scrutinise what are fairly significant changes. They have been introduced by the Government at a fairly late stage in the Bill’s progress. Will the Minister comment on why that is the case? The measures were first announced in the autumn statement but the Government were still consulting on them some five months later while we were scrutinising the Bill clause by clause in Committee.

Perhaps the most controversial of the Government’s announcements on North sea oil and gas over the past year is contained in new clause 1 and new schedule 1, which make changes to the UK continental shelf oil and gas fiscal regime. As the Minister set out, they relate specifically to leasing arrangements between oil and gas contractors and oil and gas licence holders on the UK continental shelf—arrangements that are commonly known as bareboat chartering. Oil and gas service companies often lease drilling rigs, vessels and other equipment from overseas related parties on a bareboat basis—that is, without operating personnel—and the associated rental costs are claimed as a deduction against the UK profits of the service company when it uses the equipment to provide services to oil and gas licence holders on the UK continental shelf.

As the Red Book sets out,

“the government is concerned about the use of”

such leasing arrangements

“to move significant taxable profit outside the UK tax net”.

I would be interested to hear from the Minister what estimate his Department has made of the total taxable profit that has been moved outside the UK tax net as a result of these leasing arrangements. More importantly, what evidence does HMRC have that such profit shifting or transfer pricing is avoidance activity, as the Government seem to suggest?

[Sir Malcolm Bruce (Gordon) (LD)]

When the Minister is answering those questions, I wonder whether he will also say what impact the measures will have on drilling activity in the UK.

--- Later in debate ---

[Catherine McKinnell]

The right hon. Gentleman raises an important question. I hope that the Minister addresses it in his response. I will come on to that issue.

In May, a Reuters report on these measures suggested that HMRC had

“allowed an industry with annual revenues of 2 billion pounds to pay almost no corporation tax for two decades”.

It also suggested that such arrangements have allowed drilling operators in the North sea

“to operate almost tax free for 20 years or more”.

It would be useful to know why the Government are acting now on those arrangements. I hope that the Minister will elaborate on that.

The Chancellor made an announcement in last year’s autumn statement that appears to have come as a surprise to many. He proposed the introduction of a cap on the deduction that is available to UK service companies on bareboat charters from connected companies. He also announced plans to ring-fence profits from other business activities so that the taxable profit could not be reduced by other tax losses. It appears that, because of the considerable lack of consultation before those announcements were made, the Government have significantly altered the plans to take account of the views of the industry.

The final proposals that are before us today will introduce a cap on the amount that service companies can deduct from their taxable profits through such leasing arrangements. The leasing deduction will be limited broadly by reference to a cap of 7.5% on the original cost of the asset or equipment. The cap was originally set at 6.5% but has been changed following the extensive consultation with the industry. Again as a result of the consultation, the cap will apply only to drilling rigs and accommodation vessels, which are otherwise known as “flotels”.

[Mr Mike Weir (Angus) (SNP)]

I am listening carefully to what the hon. Lady is saying. Does she agree that, although the cap applies only to drilling rigs and accommodation vessels, drilling rigs are the crucial matter? There is a worldwide shortage of drilling rigs, so the cap might mean that they are used elsewhere, rather than in the North sea.

[Catherine McKinnell]

The hon. Gentleman raises an important point. Again, it would be helpful if the Minister addressed that concern in his response. I will come on to that matter a little later.

New schedule 1 introduces a new form of ring fence that is similar to that imposed in respect of ring fence corporation tax for companies that operate on the continental shelf. The ring fence will be applicable to the composite activity that is the subject of this measure. That means that, although profits within the ring fence will only be taxed at the standard corporation tax rates and not the higher rates that apply to oil and gas producers, it will no longer be possible to reduce those profits through other tax reliefs that are derived from activity outside the UK continental shelf.

--- Later in debate ---

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

The hon. Lady is making an important point: maximising exploration is crucial to future revenues. Unless oil is produced out of the ground, we will not see any tax revenue.

[Catherine McKinnell]

That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.

Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.

This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.

I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.

The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for Tax Journal in February highlighted this issue and concluded:

“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”

Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.

As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.

After the debacle of the autumn statement last year with regard to this unexpected announcement, it is important that Ministers finally, three years after they made the same mistake, learn the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.

New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.

The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read Hansard to see the extensive debates and discussions we had in the Public Bill Committee.

Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?

[Ian Swales]

Does the hon. Lady join me in welcoming the fact that the arrangements in HMRC are to give specific permission on a production-by-production basis? I hope that HMRC will be staffed up accordingly, but that should avoid some of the abuses that took place under the previous film arrangements.

[Catherine McKinnell]

I hope that will happen and that HMRC will have the resources available to it, as we know that it has faced significant reductions in staffing. That does not necessarily mean that it will not be able to undertake the sort of monitoring we would like to see under the scheme, but it would be useful to hear from the Minister that HMRC has the resource, capacity and systems to ensure that this does not become just another vehicle for tax abuse.

[Helen Goodman (Bishop Auckland) (Lab)]

In the case of the film tax credits, the British Film Institute has a role in assessing whether the criteria are met, and it obviously has great expertise in that area. It would be helpful to know whether this work is going to be contracted out in any way or whether any particular expertise is needed by Revenue officials in doing this job.

[Catherine McKinnell]

My hon. Friend raises a very important point. I have not specifically considered it, but it fits well with some of the additional concerns put to me, which I am now putting to the Minister, about defining who should qualify for the relief and how it should be assessed by HMRC. It would be interesting to hear whether consideration has been given to using the expertise of outside bodies to ensure that HMRC gets its assessments right first time in administering this tax relief.

In the light of the National Audit Office’s recent report that HMRC monitors just 10% of its “tax expenditures”—there are more than 1,000—it would be reassuring if the Government committed themselves to reviewing the operation and take-up of this tax relief each year to ensure that HMRC is fully aware of how it is being used, and, more important, whether it is being abused.

--- Later in debate ---

[David Mowat]

Does the hon. Lady not think it right that we incentivise these renewables projects through contracts for difference and all the mechanisms the Department of Energy and Climate Change has brought forward rather than these sorts of EIS schemes? Therefore, it is rational to do what the Government have done, and that of itself should not make any difference to the propensity to go ahead with these things.

[Catherine McKinnell]

We would always hope that the Government would behave rationally in respect of these matters. I am pleased that the hon. Gentleman has absolute confidence in that, but I would be grateful if the Minister could provide some reassurance because the Government’s record on these issues has not always been entirely rational and I do not share the confidence of the hon. Member for Warrington South (David Mowat) in this regard.

On follower notices and accelerated payments, amendment 2 inserts subsection (8A), which provides that if a tribunal finds that a penalty should not have been charged because it was reasonable for the taxpayer to continue his dispute, the follower notice on which it was based remains valid, as does any accelerated payment notice or partner payment notice related to it. Concerns have been raised that if a penalty is cancelled on the grounds specified in clause 207, the validity of the follower notice—or related accelerated payment notice or partner payment notice—is not affected by the cancellation of the penalty. HMRC has confirmed that the intention is that if the penalty is cancelled on other grounds specified in subsection (2A), the follower notice, and any related accelerated payment notice or partner payment notice, would be cancelled. That is clearly the logical result of a successful appeal against the penalty. However, a few questions have been raised about this, so will the Minister say in what circumstances the grounds of appeal in clause 207(2A)(d) might be used, and why if successful, the FN and related APN or PPN would not be cancelled? When will guidance be published on this and the rest of the legislation on FNs and APNs, bearing in mind how important the guidance will be in helping taxpayers and their advisers to understand how this legislation is intended to operate? When will HMRC be publishing a list of the disclosure of tax avoidance schemes that will be issued with an APN, as we know that there is a lot of concern about the implementation of some of the Government’s proposed changes? On that very technical note, I conclude my queries to the Minister and I look forward to receiving reassurances from him in his response.

[Christopher Pincher (Tamworth) (Con)]

I welcome the chance to make a brief contribution to the debate on this group of amendments. It was a pleasure to serve on the Public Bill Committee with the Exchequer Secretary; it was certainly an educational experience for me. It was also a pleasure to serve with the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), although her professed determination to scrutinise the legislation line by line did at times make it feel as though she was scrutinising it word by word.

I should like to speak briefly to Government amendments 1 and 2, which affect clause 207, encompassing clauses 192 to 212. As the Minister and the shadow Minister have said, those provisions deal with follower notices and the accelerated payments regime. I was heartened to hear that the Minister is spelling out the ground rules for appeal in respect of follower notices, but he will know that there remains some residual concern, to say the least, about the retrospective nature of accelerated payment notices.

A number of people and their advisers have made what they believe to be a proper disclosure, particularly after the increase in the fine for non-disclosure from £5,000 to £1 million, erring on the side of caution and over-disclosing. They are concerned that they will now be caught up by that disclosure and will find themselves with retrospective tax liabilities, perhaps dating back to 2004. The Minister was good in Committee in making it clear that he would continue to consult the industry and taxpayers, because the original consultation was brief. I hope that he will do that, and will continue the dialogue with the industry and with taxpayers to ensure that nobody is caught up unfairly, having tried to do the right thing, by these proposals. I look forward to hearing him make the position clear in his remarks .

Finance Bill

Catherine McKinnell Excerpts

Tuesday 1st July 2014 Commons Chamber

Brought up, and read the First time.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I beg to move, That the clause be read a Second time.

New clause 11 relates to the Government’s employee shareholder scheme, more commonly known as “shares for rights”. It seeks to probe the Government on the scheme’s performance to date and the costs to the Exchequer in the form of capital gains tax exemptions. We have debated the subject at some length, so I thought that it would be helpful to give some background to jog hon. Members’ memories before setting out the reasons why the Opposition tabled the new clause.

The concept of employee shareholders was introduced under section 31 of the Growth and Infrastructure Act 2013, which was part of the Chancellor’s desperate attempt to kick-start growth after three years of a flatlining economy and rising unemployment, particularly youth unemployment. To get more businesses hiring, he created a status of employee known as employee shareholders. They are expected to give up several fundamental employment rights in return for tax advantaged shares in the employer’s company or parent company, issued under an employee shareholder agreement. Those shares would be tax advantageous to employees because up to £50,000 of the shares would be exempt from capital gains tax on disposal.

In exchange for those tax advantageous shares, employees would be expected to waive some of their fundamental employment rights, including the right not to be unfairly dismissed, the right to a redundancy payment, the right to request leave for study or training and the right to request flexible working, and they will have to give 16 weeks’ notice, rather than the usual eight weeks, before returning to work.

Of course, the right to request flexible working and the ability to give just eight weeks’ notice after maternity or adoption leave have been assessed by the Government themselves, in their tax information and impact note, to affect women disproportionately. They acknowledged that when they legislated for this last year. These reduced rights for female employees, in particular, are in addition to the Government’s real-terms cuts to statutory maternity pay—the mummy tax—the scrapping of the health in pregnancy grant and the significant restrictions on the Sure Start maternity grant. That begs the question that many of us are asking ourselves: just what do this Government have against women and families?

The shares for rights scheme has been widely criticised from across the political spectrum—particularly by the business world because of its impact on employment rights and grave concerns about the opportunities that it presents for tax avoidance.

[Mark Tami (Alyn and Deeside) (Lab)]

Does my hon. Friend agree that rights are rights—not something to be bought and sold? If we give people rights, they should not be able to be sold to whoever.

[Catherine McKinnell]

My hon. Friend hits on a key point. Rights are rights and should not be up for sale. I will go into some of the concerns expressed about the policy. The TUC, for example, has said:

“We deplore any attack on maternity provision or protection against unfair dismissal, but these complex proposals do not look as if they will have very much impact, as few small businesses will want to tie themselves up in the tangle of red tape necessary to trigger these exemptions.”

Not only do the proposals send out completely the wrong signals about employment rights—I have focused on women’s employment rights, but those rights are affected across the board—but they have been so badly thought through that the general feeling is that they will not have much impact, as most people would not want to enter into the arrangements.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

My hon. Friend is making incredibly important points. She mentioned businesses. Does she share my concern that the scheme has not had the support from businesses that we might have expected, for some of the practical reasons that she has raised?

[Catherine McKinnell]

I agree with my hon. Friend’s concern. The lack of transparency from the Government about the interest in the scheme is why we tabled the new clause. It has been difficult to get information about the scheme’s potential take-up—how many businesses have expressed an interest? It has taken a freedom of information request to get even the most basic information, which I will outline a little later.

I should like to quote Justin King, chief executive of Sainsbury’s. What he says relates poignantly to the interventions made by my hon. Friends the Members for Alyn and Deeside (Mark Tami) and for Feltham and Heston (Seema Malhotra):

“This is not something for our business. The population at large don’t trust business. What do you think the population at large will think of businesses that want to trade employment rights for money?”

I could not have expressed it better myself.

[Mike Kane (Wythenshawe and Sale East) (Lab)]

Does my hon. Friend agree that the measure lacks basic human dignity, which should be at the forefront of all public policy legislation? Does she agree with Lord O’Donnell, the former head of the civil service, who said that it was a form of modern slavery?

[Catherine McKinnell]

The proposition risks ringing of that. It lacks an ethical approach, given that it trades people’s rights for £2,000 of shares. More than that, it flies in the face of what we know to be true about productivity and engagement. We know that engaging a work force and building their trust makes businesses more successful. Sarah Jackson, chief executive of Working Families, says:

“It also flies in the face of everything we know about productivity and employee engagement. Treat your employees well, give them the flexibility they need, and you will be rewarded by highly motivated and high performing employees.”

The proposal we are discussing goes in completely the opposite direction, undermining the rights of employees and buying them off with shares that could carry a lot of risk for them. It is no wonder that so few businesses have taken up the offer.

[Stewart Hosie]

That is the key point, is it not? Share schemes and share option schemes are fantastic incentives in their own right. That is what should be promoted, not the link with the withdrawal of rights, which is absurd and preposterous.

[Catherine McKinnell]

I agree with the hon. Gentleman. He sums up the point at stake. The scheme seems to confuse and conflate two different issues: employee ownership of shares in a company—something we fully support—and employment rights. There seems to be a belief that one can be traded for the other and that that will create an entrepreneurial work force, when in fact it undermines productivity and performance and is so unattractive that few businesses have taken up the offer, we believe. But that is the reason for the new clause: we want to get to the truth of exactly how many businesses are interested in taking up the scheme.

[Seema Malhotra]

To build on that important exchange, Labour supports employee ownership, but coupling it with slashing employment rights is not only contradictory but counter-productive. Do we not need a way in which we can support employee ownership alongside employment rights? That is how we will get a motivated and engaged work force. Partnership between management and staff is the right way to get the focus on high productivity and long-term incentives.

[Catherine McKinnell]

My hon. Friend speaks passionately and I absolutely agree. Employee ownership is something we should be talking about and finding ways to support. That is why it is so disappointing that the Government wasted the opportunity to boost the cause of employee ownership and shareholding, and have undermined it by framing the argument so unfairly. It smacks of the Adrian Beecroft fire-at-will proposals and does not ring true for most businesses, which do not want to conduct their affairs in that way. They want an equal partnership with their employees to build the business together, knowing that in most circumstances their work force are their key asset. Undermining and cutting employment rights will potentially undermine the trust in a business between employers and employees. That is not the way to build a successful, strong business for the future.

The policy was the centrepiece of the Chancellor’s speech to the 2012 Conservative party conference. He suggested at the time that his grand idea would herald a new three-way deal between employer, employee and the Government, in which employees give up their employment rights, the company gives shares and the Government grant tax exemptions on those shares. In his words, it is swapping “old rights”—as if they are no longer required—

“with new rights of ownership.”

I want to be absolutely clear that we do not oppose the concept of employee ownership. We are aware of its benefits for both employees and employers alike, but we strongly object to its being linked to the removal of employment rights, which serves to undermine the whole concept. Ministers need to make it easier to hire people, not to fire them, but the Chancellor is kidding absolutely nobody by trying to claim that the scheme does anything other than encourage that.

The Chancellor talks about new types of ownership rights, but the Employee Owner Association, which describes itself as the voice of co-owned business, has pointed out that the scheme serves only to discredit and undermine genuine employee ownership schemes—schemes that we fully support. The chief executive of the Employee Ownership Association has said:

“There is absolutely no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership.

Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of the workforce.”

We need only look at the comments of our colleagues in the other place, including a number of former Tory Cabinet Ministers, before they voted down these measures to see that that view is shared by pretty much everyone outside the Government. Lord O’Donnell said:

“If an employer is offering this, they are probably the kind of employer that you do not want to go near. If an employee accepts it, it is probably because they do not really understand what they are doing. On those grounds, it is bad.”

He went on to ask a question:

“we know that in the old days the price of slavery was 20 or 30 pieces of silver. Is it now £2,000?” —[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 617.]

I could not discuss shares for rights without reminding right hon. and hon. Members of the view of the former Conservative Cabinet Minister, Lord Forsyth of Drumlean. He described the scheme as having

“all the trappings of something that was thought up by someone in the bath”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 614.]

Perhaps the Minister will respond to those comments today.

In new clause 11, the Opposition are trying to probe the Government on the take-up that the scheme has achieved so far. A cursory search for “shares for rights” on an internet search engine suggests that things have not been a roaring success. It turns up the following headlines. The FT.com website states, “Chancellor’s ‘shares for rights’ plan flops”. The Guardian says, “George Osborne’s shares-for-rights scheme doesn’t add up”. The Telegraph says, “No take-up on ‘rights for shares’”, as well as, “George Osborne’s flagship rights for shares scheme risks falling flat”. The specialist human resources website, XpertHR, sums it up well with, “Shares for rights: 1.7% of UK employers plan to use employee shareholder contracts, XpertHR research finds”. Even the Deputy Prime Minister has contributed to the headlines, with FT.com reporting in January that “Nick Clegg urges end of ‘shares for rights’”.

I am quoting headlines from internet searches because it is incredibly difficult to get any information out of the Government on the take-up and impact of the policy. The purpose of the new clause is to get to the truth. [Interruption.] I see that the hon. Member for Rochford and Southend East (James Duddridge) is frantically searching on his hand-held device. Perhaps he has found some alternative headlines that he would like to share with the House. Would he like to intervene?

[James Duddridge]

I assure the hon. Lady that I do not do anything frantically. I have been searching. I think that it was on Google, but I am not very good at using this little hand-held box. HR magazine says, “Osborne’s shares for rights scheme could help SMEs”. I do not know whether she needs to update her search engine or whether she is using an internal Labour party search engine that filters out good news stories.

[Catherine McKinnell]

I would be interested to hear more details of that story once the hon. Gentleman has had time to read the entry on his search engine. I am sure that it will help him to provide a robust response to my comments when he speaks in this debate. I look forward to hearing the positive story that he has to tell about the shares for rights scheme. I think that he might be a lone voice in this debate, but good luck to him.

[Seema Malhotra]

My hon. Friend has quoted some significant voices in this debate and I want to add one more quotation. Justin King, the chief executive of Sainsbury’s, said:

“This is not something for our business… The population at large don’t trust business. What do you think the population at large will think of businesses that want to trade employment rights for money?”

Does she agree that businesses are concerned that the way in which this scheme is being used is not helpful to them? They want to build long-term relationships with their employees, invest in them and find ways to build employee engagement in the profits of the company. Does she also share my concern that this is another way in which the Government are trying to reduce employment rights?

[Catherine McKinnell]

My hon. Friend raises an important point, and that concern has been expressed by a range of voices in response to the proposals—when I say voices, I mean businesses, but also those who represent employees, employee ownership and recruitment agencies. They are all concerned about the proposals ultimately creating a two-tier work force: those who have rights and those who do not.

The Opposition would like to see many problems addressed in relation to some of the insecure working practices that many workers up and down the country are subject to. We know the impact that such working practices have, particularly on those with families and their ability to plan for child care and to know whether they can afford to pay the rent at the end of the week.

People come to my constituency surgery in awful confusion about whether they need to claim housing benefit from one week to the next, because one week they get enough hours to pay the rent, and the next week they do not. That creates a two-tier work force of those who know how much they will be paid and what hours they will work, and those who are left with insecure zero-hour contracts. That potentially creates yet another tier of worker—one who does not have redundancy rights, cannot request flexible working, does not have the right to take time off to train, and one who, if they take maternity leave, has to give four months’ notice instead of two as to when they might return. There is a worrying trend of eroding employment rights that does no good for the workers involved or for businesses, and that strong message has come from businesses in response to the proposals.

Let me return to the criticisms of this policy made by the Deputy Prime Minister in the Financial Times report that I mentioned. That report was telling because it contained the only official piece of information in the public domain about the take-up of the scheme. A freedom of information request from the FT revealed that the Department for Business, Innovation and Skills had received just 19 inquiries about the scheme in the six months to the end of December. That followed a report in The Daily Telegraph last November which found that of 500 businesses surveyed, a mere 0.1%—virtually none—said they were planning to introduce the scheme. The survey also showed that 72% of businesses believed that encouraging employees to relinquish rights would make recruitment far more difficult, in complete contrast to the Chancellor’s claims.

I find that response from the business community incredibly heartening because it shows that businesses in Britain know what makes for a good, strong work force, and for trust between employer and employee. It also shows, however, how completely out of touch the Government are if they think by offering this scheme, they are giving business what it needs. The results of the survey correlate closely with the Department’s own consultation responses, which found that the policy had the full support of fewer than five of the 209 businesses asked to respond. It conceded that only a “very small number” of respondents welcomed the scheme or were interested in taking it up.

To return to the FT report, it is perhaps no wonder that Treasury officials are not particularly optimistic about the scheme’s take-up. Responding to the FT’s FOI figures, an unnamed official admitted:

“This was never going to fly off the shelf.”

Of course it was not—it is divisive, ill thought through, and has proved unpopular among former Tory Cabinet members, not to mention the overwhelming majority of the business community. I gather, however, that those FT figures are the latest information available for the scheme. Will the Minister comment on why that is the case, and explain why Ministers are so reluctant—for whatever reason—to update Members of the House on the scheme’s progress? That is why we have tabled new clause 11. We think that the House deserves to have available the information associated with this scheme.

--- Later in debate ---

[Seema Malhotra]

One could conceive that this policy may have had a well-intentioned goal, but does my hon. Friend agree that, given the feedback on the consultations, the low take-up and now the claims that it could lead to a tax loophole and large amounts of tax avoidance, it could end up being a real own goal for the Government? If the policy is not reversed, it needs to be under active review at the very least—hence the importance of new clause 11.

[Catherine McKinnell]

I thank my hon. Friend for that intervention as it takes me neatly to my next point, which is the issue of tax avoidance. Several people share our concern that the employee rights scheme is potentially vulnerable to significant abuse. I raised that concern during consideration of last year’s Finance Bill, when we tabled an amendment calling on the Government to review the impact of this scheme on tax avoidance activity. That helpful amendment was not accepted by the Government, but I hope that this year—knowing that the Government profess to be keen to clamp down on all forms of tax avoidance—they will accept the need to have the right information available to prove that this policy will not create just another massive loophole.

Buried in the annexes to the OBR’s policy costing document from December 2012 was an admission that the cost of the scheme could rise to £1 billion by 2018—depending on take-up, obviously, and we are looking forward to the figures for that. A quarter of that cost was specifically attributed to tax avoidance—or tax planning, as it is termed in the report. In certifying the figures, the OBR stated that

“there are a number of uncertainties in this costing. The static cost is uncertain in part because of a lack of information about the current Capital Gains Tax arising from gains on shares through their employer. The behavioural element of the costing is also uncertain for two reasons. First, it is difficult to estimate how quickly the relief will be taken up; this could make a significant difference as the cost is expected to rise towards £1 billion beyond the end of the forecast horizon. Second, it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning.”

Perhaps the director of the Institute for Fiscal Studies, Paul Johnson, characterised the issue best when he wrote, in a Financial Times article aptly entitled, “Shares for rights will foster tax avoidance”:

“There may be a case for more flexible approaches to employment legislation. But as a tax policy, ‘shares for rights’ always looks pretty questionable. At a time of increasing scrutiny of tax avoidance schemes, it has all the hallmarks of another avoidance opportunity. So, just as concern over tax avoidance is at its highest in living memory, just as government ministers are falling over themselves to condemn such behaviour, the same government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry. Its own fiscal watchdog seems to suggest that the policy could cost a staggering £1bn a year, and that a large portion of that could arise from ‘tax planning’.”

It is bad enough that the policy is unnecessary, divisive, damaging and counter-productive. Those of us on the Opposition Benches pretty much all agree on that, and I have not heard any voices from the Government Benches argue the opposite. I look forward to the Minister’s contribution, once he has managed to find that article that is, apparently, supportive of the scheme. The fact that the scheme could cost the Exchequer up to £1 billion, and that one quarter of that cost could arise from tax avoidance, simply beggars belief. The Minister has previously stated that there are sufficient anti-avoidance provisions to mitigate such activities, but what are the Government actually doing to monitor capital gains receipts and reliefs, and ensure we have evidence of avoidance?

Recent reports from the National Audit Office and the Public Accounts Committee have been highly critical of the Government’s continued creation of complexities and loopholes that open the door to more tax avoidance. If Ministers fail to monitor such avoidance activity properly, I fear that this will be just one more tax relief to add to the 948 on the NAO’s list of unmonitored tax expenditures, to use the Treasury’s own phraseology. Considering that the scheme came into being last September, can the Minister produce any more up-to-date estimates, based on Treasury data, to build on the OBR’s original forecast? If he is not able to do that today, hon. Members will want to vote for new clause 11 to ensure that that information is available to the House, that monitoring is taking place and that we can all see the potential implications of the Government proposal.

The Chancellor’s flagship shares for rights scheme has been rejected by businesses. It may have opened up a tax loophole that, according to the OBR, will cost the Exchequer £1 billion. For what gain? That is what people are asking. That is what the Government need to demonstrate in their response today, or certainly in the report that we are calling for. We have said that we will reverse the shares for rights scheme and use the money to contribute to the repeal of the bedroom tax. The bedroom tax is a cost-inefficient policy and we would like to see it reversed. We want the money saved from the damaging shares for rights scheme to be used to ensure that that can be achieved without any extra borrowing. We have urged the Government to abandon their ill-thought-through shares for rights policy, which the director of the IFS aptly described as having all the hallmarks of another tax avoidance opportunity, never mind the former Conservative employment Minister, Lord Forsyth, accusing it of having the trappings of something thought up in the bath. So far, Ministers have failed to listen; or at least, they may be listening but they are not hearing.

We have tabled new clause 11 to try to provide much-needed clarity. Officials and Ministers dismiss out of hand as unrepresentative take-up figures disclosed in FOI requests. OBR forecasts are dismissed as not taking account of all the facts. Indeed, the Government’s own measures are dismissed as being unreliable or uncertain. Why will Ministers not step up to the mark and disclose exactly how many employees have signed up to employee shareholder contracts and have been awarded the £2,000 in return for shares? Why will Ministers not disclose the value of shares that have been issued under the shares for rights scheme to date? Instead of labelling Opposition amendments as unnecessary and as an administrative burden, which I anticipate the Minister will, why will the Minister not instead today tell us exactly how much the scheme is costing the Exchequer as a result of the capital gains tax exemptions? How much of that cost is as a result of tax planning arrangements; people capitalising on a poorly thought through policy that could quite easily act as a tax avoidance mechanism, rather than the great stimulus to entrepreneurship and employment that the Government claimed it would achieve?

It is bad enough that this divisive policy totally undermines the concept of employee ownership and workplace rights, not to mention the potential millions lost in tax avoidance activity; but worst of all, Ministers are plainly refusing to disclose the information that would enable Members properly to assess and scrutinise what the scheme has done to achieve the Chancellor’s clearly stated aim of helping businesses to recruit more people.

For all those reasons and given the concerns set out by my hon. Friends, I urge hon. Members to support our new clause 11, so that we can get the facts straight on shares for rights.

[Chris Evans (Islwyn) (Lab/Co-op)]

Before the soothsayers and the sketch writers say again that Labour is anti-something or other, I want to make something quite clear. [Interruption.] The sketch writer is in the Gallery, although perhaps I am being a little arrogant to think that anyone would want to report on one of my speeches. Before the press releases go out from Tory central office saying that Labour is anti-share save schemes all of a sudden, I want to make it clear that this party has always been in favour of shares to reward people for the work they do.

The best and most successful companies offer shares to their most successful employees. Indeed, I would like to draw the Minister’s attention to how successful a share save scheme can be by using the example—a Welsh example—of Admiral Insurance. In March 2013, it recorded a 15% increase in profits. In all, 6,500 members of staff at the Cardiff-based Admiral Group will get £3,000 in an employee share save scheme. Alastair Lyons, the chair, said at the time:

“I want to thank everyone who has helped us to create such a robust business”

in the past 20 years. People are more productive, happier and more contented when they are valued and, above all, when they feel valued. That is why the Admiral Group of companies are among the top 100 best places in the UK to work, which I am sure did not come about by trading in employee rights for shares.

Sometimes it seems that this Government are so intent on presenting some sort of radical, compassionate conservatism that they fumble around for an idea, before coming back to ideas that have failed time and again. Very often, it seems that this Government, like previous Tory-led Administrations, are fearful of employment rights, and I am not the only one saying that. According to even the independent Office for Budget Responsibility—if I may digress, Madam Deputy Speaker, the Government are resisting requiring that very body to audit all parties’ manifestos at the next general election—the flagship shares for rights scheme has been rejected by businesses, opened up a tax loophole and will lead to £1 billion being lost by the Exchequer. In the face of such criticism, it seems eminently sensible to support our amendment for it would compel the Treasury to report on the take-up of shares for rights, collect data on the scheme and publish further reports on shares for rights every year.

--- Later in debate ---

[Chris Evans]

The hon. Gentleman is taking a very liberal position, but I refer again to the evidence given during the Committee stage of the Bill that became the Growth and Infrastructure Act 2013, which introduced the measure. It was said there that employees who took up the scheme would have to pay income tax and national insurance on any share received from employers over and above £2,000. The scheme would impose significant up-front costs, so I do not know whether it would be so voluntary. I have criticised Adrian Beecroft about his anecdotal evidence, but I wonder what would really happen in the workplace. We know of so many tribunal cases where people have been harassed or been under severe strain from an employer and then gone on long-term sick leave. What is to prevent the employer from forcing them to sell those rights?

[Catherine McKinnell]

My hon. Friend raises an important point, but the intervention by the hon. Member for Eastbourne (Stephen Lloyd) does not take account of the fact that many employees are in a very vulnerable position with their employers. If they are approached by their employer to take this up and they turn it down, what happens? What situation are they left in? There are an awful lot of question marks over how the scheme works in practice and where the equality of arms is for the employees potentially affected by the scheme.

[Chris Evans]

My hon. Friend advances the argument eloquently. We debate these issues and talk about employment rights, but if someone is in a poor workplace, is struggling to pay the rent or the mortgage and the bills, and faces a severe threat that they might lose their job, they might be forced into doing this. In many non-unionised businesses there will be nobody to police this, so those people might be forced into it. She powerfully made the point about how women, in particular, are in that type of situation.

I should have made my next point before the hon. Member for Eastbourne (Stephen Lloyd) intervened on me, but I will do so now. Paul Callaghan, partner in the employment team at Taylor Wessing, has said:

“Osborne is potentially forcing all new employees to waive the main employment rights including unfair dismissal and redundancy rights in exchange for £2,000 of shares. This makes Adrian Beecroft’s fire at will proposals look moderate.

From April it may become the norm for job offers to require this waiver which will also involve the loss of flexible working rights and stricter maternity rights. This is likely to have a disproportionate effect on women.”

Henry Stewart, founder and chief executive of the training company Happy Ltd, has said:

“I welcome anything which makes it cheaper and simpler to give employees shares, but coupling it with taking away employment rights is ridiculous. If as an employer you have a problem with unfair dismissals, you need to improve management—that’s what the government should be giving incentives for. I don't think it's been thought through.”

In a nutshell that sums up what I think of this proposal. Bad employers who are afraid of unfair dismissal cases, reprisals, recrimination and grievances from employees should think about how they are managing their staff and look hard at their human resources department.

Corey Rosen, founder of the National Centre for Employee Ownership, one of the world’s leading groups promoting share ownership, has said:

“There is a lot of employee ownership in our country, but not one of these employees and not one of these plans asks employees to give up any employment rights to get any of the various tax benefits associated with employee ownership.”

That is a voice from the United States, not somewhere known for being particularly friendly to those in trade unions or on employment rights.

Simon Caulkin, writer on management and business, has said:

“In effect, Osborne's cobbled-together scheme is a back-door re-run of the agenda of…Beecroft”.

Rebecca Briam, partner at Gannons Solicitors, said:

“It is unlikely to get off the ground.”

With only five businesses out of 200 wanting to take up the scheme, I think she is right. She goes on to say:

“The proposals will be unpopular with employees because the chances of benefitting are so slim.”

She said that it was

“unpopular with employers, especially privately controlled companies, because of the risks imposed to the share structure. Far from saving on payroll expenses, the total costs for an employer may well increase.”

Manufacturers’ organisation EEF said:

“Our members have indicated they would not implement the new status.”

The Federation of Small Businesses said:

“The scheme is unlikely to be appropriate for many small businesses.”

The Chartered Institute of Personnel and Development said:

“There is very little evidence as to why this policy is needed or what impact it will have.”

Such views support the new clause that is before us.

Earlier, I talked about the vehicles that are created for the purpose of tax avoidance. Matthew Findley, partner at law firm Pinsent Masons, addressed that matter quite eloquently. He noted that the income tax positions of those receiving the shares is still unclear:

“There is nothing in what the Government has said so far that would stop senior executives or substantial shareholders from participating in the arrangement. This may mean that an opportunity still exists for such individuals, even if they may be viewed by some as the ‘wrong’ people politically to benefit.”

Paul Johnson from the Institute for Fiscal Studies talked about the potential for tax avoidance as the scheme

“prepares to put another billion pound lollipop on the table.”

He says:

“Just as Government Ministers are falling over themselves to condemn such behaviour, that same Government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry.”

An avoidance industry is something of which a Government who want to create jobs cannot be proud.

I support new clause 11. As there has been such a low take-up of the scheme—only five in 200 companies have said that they would consider it—a report needs to be produced. Numerous commentators from the business community have expressed the fear that a new tax avoidance scheme is being set up, which suggests that this is a pertinent and sensible new clause, and I urge the Government to accept it.

--- Later in debate ---

[Mr Gauke]

I do not accept that. As far as avoidance is concerned, the tax reliefs are intended to encourage the take-up of employee shareholder status by individuals when that is offered to them. However, those reliefs are not an end in themselves. A number of rules in the legislation will prevent abuse of the new status while keeping it as simple as possible for employers and employees to use. For example, there are rules that will stop people with a material interest in the relevant business exploiting the tax reliefs for their or their families’ benefit. We will always keep the matter under review. As I said, if we see any abuse, we will act. However, we believe that we have put in place rules that protect the Exchequer from such tax avoidance.

I want to say a little more about take-up. My hon. Friend the Member for Rochford and Southend East (James Duddridge) made a good point: the argument is simultaneously that no one is making use of the scheme and that the scheme will cost a lot in tax avoidance. There is something of a tension between those two positions.

We decided not to introduce a pre-registration or pre-approval system for those wishing to make an employee shareholder agreement. The Office of Tax Simplification has told us that HMRC pre-approval of share schemes is outdated and time consuming for businesses. Data on employee shareholder status will therefore be picked up from companies’ annual share scheme returns to HMRC. As I said, the scheme has been in place only since the beginning of September 2013, so we have not even reached the deadline by which companies must submit their returns to HMRC for that period. It is far too early to finalise any details of publication.

[Catherine McKinnell]

Given the widespread concern expressed about the scheme, is the Minister’s position—that the Government will just wait and see—not incredibly complacent? When the returns come in, the scheme may prove to have been one big tax avoidance opportunity, but the Government seem perfectly relaxed about that.

[Mr Gauke]

No, that is not the case. As I said, when the original legislation was passed, protections were put in place; a moment ago, I gave an example of one designed to prevent abuse. We will continue to monitor the issue. As with all activities, if evidence of avoidance emerges, the Government will be determined to act, as we have time and again.

On the data on employee shareholders and on take-up, a question raised by a number of hon. Members, I am simply seeking to explain that I am not in a position to give the information that the hon. Lady and others have asked for because we have not required pre-approval or pre-registration for the scheme. That point is also relevant to the FT figures on take-up that have been mentioned. As there is no need for companies making use of the employee shareholding scheme to contact BIS in advance and there is no registration or approval system, we do not expect BIS to have a definitive list of all those companies that have made use of the scheme. That is why I am not in a position to give that information to the House and why the figures that were used by the Financial Times should not necessarily attract a huge amount of excitement.

The scheme is a new facet of our employment practices. It is probably unfair to judge a scheme such as this in its first few months because it will need time to bed in before there is wider knowledge about it and it is more widely used. As I have said, I am not in a position to provide information at this point.

[Mr Gauke]

It is always a great pleasure to give way to my favourite Member of Parliament for Edinburgh South. In quoting the figure of £1 billion he is somewhat conflating two things. One is the OBR’s estimate of the potential cost of the scheme some years into the future, if a whole set of circumstances apply and we do not take action to deal with any concerns that might emerge. As far as the Red Book is concerned, the published estimates of the annual cost of the measures are £10 million in 2016-17 and £45 million in 2017-18. Those are the numbers and we have no reason to believe that they will prove inaccurate, so to correct the hon. Gentleman for the record, we are not talking about a cost of £1 billion.

New clause 11 would impose an obligation on the Government that is not only unnecessary but, as I have set out in some detail, could not be met given the current availability of data on take-up of the employee shareholder status. Given that the new clause is unnecessary and would be unworkable, I ask the Opposition not to press it.

[Catherine McKinnell]

It will be no surprise that I find the Minister’s response extremely disappointing and a little concerning in its complacency towards a policy about which widespread concern has been expressed. Taking away the rights of working people across the UK is no substitute for a proper strategy for economic growth. The policy makes it easier to reduce rights at work and fire people, rather than making it easier to hire people. That shows just how out of touch the Government are.

I commend the hon. Member for Bedford (Richard Fuller) on his thoughtful speech. I also commend my hon. Friend the Member for Islwyn (Chris Evans) on his mammoth and excellent speech, and my hon. Friends the Members for Wythenshawe and Sale East (Mike Kane) and for Edinburgh South (Ian Murray). Opposition Members have put forward a powerful argument for the reasonable new clause that we have tabled. It simply asks the Government to make a proper assessment of who is taking up the shares for rights offer and what the cost to the Exchequer will be, including any loss from tax avoidance or abuse. As far as we can see, this is just another way in which the Government are trying to water down the rights of people at work.

Frankly, to Opposition Members and the many business organisations that have expressed their concerns, this policy stinks. The House and members of the public deserve to know exactly what the implications of the policy will be before the horse has bolted. The Government say that they will only shut the gate once that has happened. [Interruption.] I hear hon. Members groan at that, but I quote Lord Deben:

“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life.”—[Official Report, House of Lords, 6 February 2013; Vol. 743, c. 293.]

I think that he puts it very well.

[Ian Murray]

The Minister tried to respond to my two interventions about tax evasion by reading figures from the Red Book. However, the accompanying document to the autumn statement of 2012, at which this policy was announced, states that the policy could cost upwards of £1 billion because there are uncertainties around

“the extent of tax planning”.

That sounds to me like tax avoidance.

[Catherine McKinnell]

I, too, took great interest in what the Minister said, because he seemed to disown the figures that were published by the Office for Budget Responsibility on this policy, as though they were in some unknown ether in the future. He appeared to be saying, “It’s nothing to do with me, guv.” The figures that the OBR predicts are very clear. It will cost £1 billion and a quarter of that can be attributed to tax planning and, if the concerns of the hon. Member for Redcar (Ian Swales) are borne out, tax avoidance.

[Ian Swales]

I am sorry to have missed some of the erudite contributions to this debate, especially that of the hon. Member for Islwyn (Chris Evans), whom I always enjoy hearing. I do not know whether these points have been mentioned. Is the hon. Lady concerned about the effect on competition between businesses if one business uses this process and another does not? Secondly, is she aware that the Office for Budget Responsibility thinks that existing share schemes may be shoehorned into the new process, meaning that people who are already in share schemes and who have employee rights might suddenly find themselves forced into the new arrangements?

[Catherine McKinnell]

I share all those concerns and many more. Ultimately, it is for the Government to take on board what is being said to them so clearly, but they seem to be ignoring it. The hon. Gentleman will know that he has the opportunity to vote with the Opposition on new clause 11 and to get the Government to sit up and listen to the concerns that are being expressed. Perhaps the data will show that the scheme has had a fantastic take-up, that it is entirely fair and that it has created many new jobs. Perhaps it is the boost for growth and job creation that the Chancellor proclaimed it would be. Alternatively, they might show that it is just a tax avoidance opportunity that is unfair to the employees who are forced into it against their will.

The Conservative, Baroness Wheatcroft, said:

“Let us imagine a group of employees who have sold their rights—for a mess of pottage, as we have heard—and another group who have not. The company falls on hard times and has to declare redundancies. Who will be first in the line for redundancy? I would hazard a guess that it will be those who have shown the most commitment to the business by becoming employee shareholders under the new scheme. That is the sort of perverse effect that we are likely to see if the clause goes through.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 618.]

That is the sort of perverse effect that we want the Government to take action on by producing the data that will enable Members of this House to know the true impact of this employee shares for rights scheme.

I urge all hon. Members to vote for new clause 11.

Question put, That the clause be read a Second time.

Oral Answers to Questions

Catherine McKinnell Excerpts

Thursday 1st May 2014 Commons Chamber

[Mrs Grant]

I am delighted to congratulate the 13 host cities. My hon. Friend’s constituency, with its unique link to the birthplace of rugby, has an excellent opportunity to benefit from next year’s tournament.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

Tourism is a growth industry in the north-east, supporting 18,000 jobs in an area that still suffers from the highest levels of unemployment in the country. What is the Minister doing to support tourism in areas such as the north-east in the light of the forthcoming major sporting events, given that such events provide an excellent opportunity for its promotion?

[Mrs Grant]

I grew up in an area close to the north-east, and I know how fabulous it is. We have an excellent domestic tourism package, and VisitEngland has launched two brilliant “holidays at home” campaigns, which have generated millions of pounds of incremental spending. I hope that the hon. Lady’s constituency will benefit from that.

Oral Answers to Questions

Catherine McKinnell Excerpts

Tuesday 29th April 2014 Commons Chamber

[Danny Alexander]

It would have a significant impact on almost every working person in this country. The Government’s direction of travel, led by the Liberal Democrats, has been to reduce the burden of taxation on working people. Some 26 million working people have seen their income tax bill reduced this month by £700 a year, thanks to the decisions that this coalition Government have taken to increase the personal allowance to £10,000.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

Perhaps the Chief Secretary can do better at answering this simple question. Next year, the Chancellor will have been in post for five years. Will the Chief Secretary confirm that figures from the Office for Budget Responsibility show that over that time real wages will have fallen by 5.6%, leaving working families worse off, not better off, after five years of the Chancellor’s stewardship of the economy?

[Danny Alexander]

The hon. Lady will know that the OBR forecasts earnings to grow more rapidly than inflation throughout the forecast period—that is the answer to the question. I have to say that the hon. Lady seems to have been listening to the shadow Chancellor rather too closely. I notice his recent quote:

“I had no awareness at all that there had been any damage”.

He was referring to his car rather than to the British economy, but it is about time that the Labour party apologised for the mess that it made of the latter.

Finance (No. 2) Bill

Catherine McKinnell Excerpts

Wednesday 9th April 2014 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I beg to move amendment 3, in page 8, line 25, at end insert—

‘55F Review

(1) Within six months of the passing of the Finance Act 2014, the Chancellor of the Exchequer must undertake a review of the impact of the tax relief for married couples and civil partners introduced under this Chapter.

(2) The review must in particular include—

(a) a calculation of the proportion of married couples and civil partners who are eligible for the tax relief in the financial year 2015-16;

(b) an assessment of the impact of this tax relief on those who are neither married nor in civil partnerships;

(c) the cost to the Exchequer of this tax relief; and

(d) an assessment of alternative tax reliefs that would benefit a greater number of families.

(3) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to consider clause 11 stand part.

[Catherine McKinnell]

It is a pleasure to serve under your chairmanship today, Mr Hoyle. I rise to speak to the Opposition’s amendment to clause 11 regarding the coalition’s proposed tax relief for married couples and civil partners. Before I begin, let nobody be in any doubt that the Opposition believe that marriage and civil partnerships are a force for good in society. Making a binding lifelong commitment to a partner in that way is truly to be celebrated. Let us not pretend, however, that the Government’s marriage tax allowance, introduced by clause 11 of this year’s Finance Bill, is anything other than a complete and utter dud of a policy.

[Tim Loughton (East Worthing and Shoreham) (Con)]

If that is the case, why in 13 years did the Labour Government not do a single thing—such as introducing a transferrable tax allowance, for example—to recognise married couples in the tax and benefits system? They did not do a single thing.

--- Later in debate ---

[Catherine McKinnell]

We know what the Chancellor thinks about this marriage tax allowance. He thinks that the idea is a turkey, both politically and economically. Indeed, an article in The Daily Telegraph went so far as to say—[Interruption.] I hear groans from those on the Government Benches. The article went so far as to say that the Chancellor

“loathes the idea. He is not a social conservative and hates the notion of bribing anyone down the aisle. He has made sure the marriage tax break will not come into effect until the very last weeks of this government—and it will be so small as to be unnoticeable. To resolve the impasse, Treasury officials were asked to see whether they could dump the agenda on to Iain Duncan Smith, so the Chancellor could wash his hands of it. But a tax cut has to come from the Treasury.”

[Mr Stewart Jackson (Peterborough) (Con)]

I am sure my right hon. Friend the Chancellor is touched by the hon. Lady’s warm support. Will she share with the House her thoughts on, and specifically answer, the question asked by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton)? Why did the Labour Government do nothing to support the institution of marriage in 13 years?

[Catherine McKinnell]

The answer lies in what I have already said; the Labour Government did a huge amount to support all families up and down this country, particularly families with children. Even the Chancellor seems to agree that £3.85 a week is not going to bribe anybody down the aisle or persuade anyone to stay in a marriage if they decide they are going to leave it. The question asked by the hon. Member for East Worthing and Shoreham (Tim Loughton) does not seem to acknowledge the fundamental issues with the Government’s proposal.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Does my hon. Friend agree that one difficulty with this proposal is shown in the analysis by the Institute for Fiscal Studies? Robert Joyce, the senior research economist there, says:

“The policy is not a general recognition of marriage in the income tax system”.

So the argument that has been made by the Government is false, in the sense that it gives an impression about this policy which is not actually true. He goes on to say that

“it is difficult to escape the conclusion that an income tax system which makes some people worse off after a pay rise has something wrong with it.”

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Order. I think we need shorter interventions rather than speeches—I would sooner save your voice for later.

[Catherine McKinnell]

On the basis of my hon. Friend’s insightful intervention, I am looking forward to his speech on this matter. He makes the point well, and it is the point that I am seeking to make. As the Chief Secretary to the Treasury has said:

“This policy is not about children and families…it does nothing for millions of families with children struggling to make ends meet.”

[Neil Parish (Tiverton and Honiton) (Con)]

Does the hon. Lady agree that although this marriage allowance is not going to persuade people to go or not to go down the aisle, it does recognise what marriage and stable relationships really bring both to children and to the couples? Does she think that in 13 years the Labour party might perhaps have considered it?

[Catherine McKinnell]

Today, we are discussing the merits of this Government proposal in this Bill. We think it is a dud of a policy, and the Chancellor and the Chief Secretary seem to think so, too. I will set out all the reasons why it is a dud, but talking about whether the previous Labour Government considered this policy does not address the issues we are debating today—this policy and our amendment to it. If Government Members are so keen for there to be genuine support for families, for children and for marriage, they should welcome our amendment proposing a proper review on the impact of the tax relief that the Government are suggesting as part of this Bill and exploring alternative tax reliefs that could benefit a greater number of families and, potentially, a greater number of married couples, given the Government’s proposition’s clear deficiencies in recognising most marriages.

[Mr Henry Bellingham (North West Norfolk) (Con)]

Does the hon. Lady agree with the principle that there should never be a financial disincentive for people to be married and remain in a marriage?

[Catherine McKinnell]

The proposal under consideration only gives any sort of tax benefit, small though it is, to a third of married couples. I am surprised that Government Members are not more keen to explore the potential alternatives to this dud policy.

[Tim Loughton]

rose—

[Catherine McKinnell]

Let me make some progress. We are left in a position in which the Minister now finds himself trying to defend a policy that neither his boss nor his deputy support. It is an absolute farce, but clearly Government Members do support it, and quite vehemently. I hope to persuade them to consider the Opposition amendment and take a second look at the policy. If that fails and the policy is implemented in the Finance Bill, I want them to agree to review its impact within six months of its implementation to ensure that it is having the maximum benefit for the maximum number of people.

What is it about this policy that is so bad? Frankly, it is hard to know where to start. Let us begin by looking at who will benefit from this highly restrictive and very complicated measure, which will allow couples to transfer up to £1,050 of their income tax personal allowance to their spouse with effect from April 2015. Of course it applies to married couples and those in civil partnerships, but not just to any old marriages or any old civil partnerships. No, the Government have decided that there is a very particular form of marriage or civil partnership that they wish to recognise in the tax system. Unintentionally, misleading statements were made by the Prime Minister to this House—[Hon. Members: “What!”] Unintentionally, I said. The marriage tax allowance introduced by clause 11 applies only to those couples where one spouse is a basic rate taxpayer and the other does not use their full personal allowance. That scenario has been described by the “Don’t judge my family” campaign as a fantasy 1950s family with a breadwinner and a home maker. The policy will therefore exclude married couples and civil partners on the very lowest incomes where both spouses earn below the income tax personal allowance; couples where both spouses, possibly both basic rate taxpayers, have incomes higher than the personal allowance and therefore have no unused portion to transfer; and couples where either spouse pays the higher rate or the additional 45% rate, with an ever increasing number having been drawn into the 40 pence rate under this Government.

How many people are we taking about? How many households across the country will benefit from the Government’s flagship policy for supporting families? Their own recent estimates suggest 4.2 million couples, which equates to a grand total of one in three married couples and civil partnerships in this country. Two thirds of married couples and civil partnerships will not benefit from a policy intended to recognise marriage in the system.

[Tim Loughton]

I agree that there is a flaw in what the hon. Lady is discussing. Presumably, like me, she wishes to see that relief being extended not just to those on the basic rate but to a greater number of married couples with children. That is the logical conclusion of what she is saying, unless she admits once and for all that the Opposition do not support marriage in the tax system.

[Catherine McKinnell]

We have a much better suggestion as to how the money that has been allocated to the marriage tax allowance can be used to support millions of taxpayers up and down the country, including families with children. So what about those families with children who are hoping in vain for any sign of support from this Government whose tax and benefit changes will result in households being, on average, £974 a year worse off by 2015 than they were in 2010? The Exchequer Secretary, who is in his place, has conceded that of Britain’s 7.8 million families with children, just 1.4 million will benefit from this policy. Yes, that is right—one in six families with children will gain from this marriage tax allowance. To put it another way, five in six families with children will not get a penny from this Government’s flagship policy to support them.

The policy does nothing for widows, widowers, lone parents, long-term co-habiting couples, the 300,000 children living with grandparents or kinship carers or for the spouse who has left their partner for good reason, perhaps because of domestic abuse. It will not help the wife who has been left to bring up the kids after the husband has run off with another woman. If her husband chooses to marry that other woman, who have the Government decided will get the reward within the tax system? It is him.

How much will the allowance be worth for those lucky married couples who will be eligible? Just how much value are Ministers putting on the role of marriage in our society? Yes, for the one in three couples who will benefit, it could be worth up to £200 a year, almost £3.85 a week. To put that into language that people on the Labour Benches might understand—that is just over one pint of beer or a one-off peak game of bingo a week! Who does the Government expect to reap the benefits from this largesse? Let us take a look at their own assessment of the equality impact, which clearly states that while

“couples will benefit as a unit...the majority...of individual gainers will be male.”

But it is not just any old majority. The Government’s own assessment indicates that a staggering 84% of individual gainers will be male.

Before last year's autumn statement, we knew that the net impact of this Chancellor’s tax and benefit changes since 2010 would hit women three times harder than men, not least as a result of his decision to give a £3 billion tax cut to the top 1% of earners in this country, 85% of whom just happen to be men. As a result of the autumn statement 2013, in which the marriage tax allowance was confirmed, that appalling record has worsened even further, such that the Chancellor’s tax and benefit strategy is now hitting women a staggering four times harder than men, raising a net £3.047 billion from men, and £11.628 billion, or 79%, from women—[Interruption.] I hear the word scandalous uttered from a sedentary position, and I quite agree.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

I am grateful to my hon. Friend for giving way and for making such powerful points. When these points are put to the Government, they always say that the financial circumstances are such that there must be cutbacks somewhere. Is it not ironic that the Government are putting forward a policy that is so badly thought out that if anyone were asked to choose a priority for public spending, this would not be it? Should we not be taking real measures to tackle problems such as the bedroom tax and the changes in universal credit, all of which will cause much more damage than any benefit that this will bring about?

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Order. I appeal for shorter interventions. We have time, but Members cannot make a speech as an intervention.

[Catherine McKinnell]

I thank you, Mr Hoyle, and also my hon. Friend whose intervention was powerful and to the point.

[Kate Green (Stretford and Urmston) (Lab)]

My hon. Friend is right to highlight the disproportionate benefit of the marriage tax break to men. Does she not agree that the argument that couples will benefit as a unit completely fails to recognise financial coercion in relationships, and that those who get the money have the power?

[Catherine McKinnell]

My hon. Friend raises an important point and it goes to the heart of so many of the changes that this Government have made. So many of the decisions that they have made time and again in Budget after Budget have hit women hardest. Back in September 2011, a leaked No. 10 memo admitted that the Government had a problem with women, and promised a new communications campaign to turn things around, but it clearly has not worked. A key recommendation of a No. 10 communications campaign to be female friendly was to “focus on more visible women leaders”, but until this morning women made up only four of the 23 Cabinet members and that figure is now down to three. Let us not let the Deputy Prime Minister off the hook. Only four out of 25 Lib Dem Ministers are women—[Interruption.] Government Members are shouting, “What has that got to do with this measure?” I wonder whether one of them would like to intervene.

[Andrew Selous (South West Bedfordshire) (Con)]

During her research for the debate, did the hon. Lady become aware of the fact that 93% of young teenagers still living with both parents are with married parents? That is quite a powerful statistic.

[Catherine McKinnell]

That is an interesting statistic. I know that the hon. Gentleman is committed to the principle of this measure, but I and other Opposition Members are trying to make the point that the policy is not only dud as regards its practical application but further compounds the unfairness in how the Government have made their decisions in Budget after Budget. Let us remember when hon. Gentlemen question what my point has to do with this measure that we know that the majority of gainers from the policy are men.

[Kate Green]

Does my hon. Friend think that the hon. Member for South West Bedfordshire (Andrew Selous) was seriously suggesting that £3.85 a week would encourage more couples to stay married? There is no evidence of cause and effect at all.

[Catherine McKinnell]

My hon. Friend’s point goes to the heart of the matter. It demonstrates what is wrong with this policy and how ill-conceived it is.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

The intervention from the hon. Member for South West Bedfordshire (Andrew Selous) was interesting, but should he not acknowledge that only one in six of those families will benefit from any of this?

[Catherine McKinnell]

My hon. Friend makes an extremely good point. Our opposition to this measure is that it disproportionately impacts on women and benefits men and that it does not recognise five out of six households with children up and down the country who are, as we know, struggling to make ends meet.

[Mr David Burrowes (Enfield, Southgate) (Con)]

The problem with the hon. Lady’s point is that she is looking at married couples individually. The change is that, rather than wholly going down the route of an individualised tax system, as has happened in the past, this policy considers married couples. Married couples are benefiting and, if we asked them, they would say that they are benefiting as a couple and as a household. They are not hiving off men against women, which is what she seems to be doing.

[Catherine McKinnell]

The tax system works on an individual basis and this proposal introduces incredible complexity to the tax system. I shall cover that in more detail and explain the cost implications. Government Members obviously think that the costs are worth it, but I would be very careful about the concept that all married couples will happily share all their money and any tax gain—although, admittedly, we are talking about £3.85 a week. That seems to be rolling the clock back somewhat and assuming a level of communication within households that I do not think it is the Government’s place to assume.

Women are more than £26 a week—a week—worse off in real terms since 2010, and after significant progress under Labour, when the gender pay gap fell by more than 7%, it is now rising again for the first time in five years. The gap between women’s median weekly earnings in the private sector and the public sector has increased between 2009-10 and 2012-13 from 28% to 31%. The same gap for men has decreased from 17% to 14%. At the same time, the cost of child care places, which we debated at length yesterday, has risen by an average of 30% on this Government’s watch, five times faster than pay.

Analysis by the House of Commons Library shows that the Chancellor’s tax and benefits strategy since 2010 has raised a net £3.047 billion, or 21%, from men and 79%, or just under £12 billion, from women. That includes the Budget 2010 tax credit cuts, which took £2.7 billion from women and only £750 million from men, the 2010 spending review, under which reductions in child care support through tax credits took £343 million from women but just £47 million from men, and the three-year child benefit freeze, which has taken £1.26 billion from women and £26 million from men. That, of course, contrasts with the £3 billion tax cut that was given to the top 1% of earners in this country, under which 85% of the gainers are men, and this marriage tax allowance, under which 84% of the gainers will be men. This issue goes to the heart of the clause and of why we are tabling our amendment.

[Mr Stewart Jackson]

The hon. Lady is being most generous in giving way. Why does she imagine that 80% of the population covered by the OECD have a tax system that rewards marriage, including countries such as France, Germany and the United States?

[Catherine McKinnell]

We must consider this clause in the context of the current situation. We know that families up and down the country—in fact, all households—are facing a cost of living crisis. We have had three years of a flatlining, stagnating economy and households up and down the country have been paying the price for that. We have a Government who are introducing measures that will benefit a small proportion of married couples—only one in six households with children—and under which 84% of the gainers will be men, when we know that those who have paid the bulk of the price so far for the deficit reduction strategy that the Government have been pursuing have been women. It is a question of priorities, and this Government seem to have them completely wrong.

[Andrew Selous]

I want to check that I heard the hon. Lady correctly. She talked about a flatlining, stagnating economy, so I wonder whether she heard the International Monetary Fund say yesterday that we have the fastest rate of growth in the IMF and in the whole of the G7 at 2.9%.

[Catherine McKinnell]

I think that Government Members would love to try to whitewash and erase from the memory of the public the past four years, three of which have had zero—that is, flatlining—growth in the economy. People will be £1,600 worse off on average in 2015 than they were in 2010 and whatever growth is happening in the economy now is happening despite, not as a result of, the Government’s economic policies. I urge hon. Members to exercise caution in saying that everything in the garden is rosy when people out there are struggling to make ends meet.

[Ian Swales (Redcar) (LD)]

I am following the hon. Lady’s speech with great interest. For completeness, so that we have the full picture, can she say what proportion of tax is paid by men and what proportion of benefits are paid to women?

[Catherine McKinnell]

I am pleased that the hon. Gentleman has entered the debate, because the Liberal Democrats are key to today’s measure, and I shall go on to explain why. I think we know that there is long-term inequality. The mere fact that 85% of those who benefit from the tax cut from 50p are men speaks volumes about how this country is weighted. The majority of wealth is held by men. I understand the hon. Gentleman’s point, but I urge caution as the Liberal Democrats are in an interesting position today when it comes to how they will vote not only on this measure in the Bill but on our proposed review.

[Kate Green]

Does my hon. Friend agree that evidence stretching back over several decades shows that when money is paid to the main carer of a child, usually the mother, that money is more likely to be spent on the children? A Government about to preside over a startling rise in child poverty should be mindful of that when they introduce a measure such as this.

[Catherine McKinnell]

My hon. Friend makes an incredibly pertinent point, and expresses her case powerfully. Child poverty is set to increase by a staggering amount under this Government, and the Institute for Fiscal Studies has clearly said that that is a direct result of the tax and benefit changes that they have implemented. The measure, which Government Members are keen to support, will do nothing to alleviate child poverty or to turn the tide of increasing child poverty over the next few years.

[Tim Loughton]

The hon. Lady has cited the IFS, which has conducted an analysis of the distributional impact of the transferrable allowance, demonstrating that it is profoundly progressive, disproportionately benefiting those in the bottom half of the income distribution scale. Perhaps she would read us all the research, rather than a selective part of it.

[Catherine McKinnell]

The hon. Gentleman is incredibly selective. If he genuinely believes that the policy will transform the Government’s appalling record on child poverty and the impact of their tax and benefit changes on women, he is deluded.

[Mrs Mary Glindon (North Tyneside) (Lab)]

My hon. Friend is making a good case for the amendment. Only a third of families will get £200 a year extra, but the average family will be £974 a year worse off by the time of the next election, which shows the iniquitous state of affairs that the measure will create.

[Catherine McKinnell]

My hon. Friend makes an important point. I would add that it is not a third of families who will gain from the policy—it is a third of married couples. Five in six households with children, whom many would consider to be families—particularly the Opposition, but perhaps not the Government—will not gain anything from the policy, which only compounds the child poverty issue about which the Government seem complacent.

[Kate Green]

Does my hon. Friend not agree that the reading of the figures by the hon. Member for East Worthing and Shoreham (Tim Loughton) was highly selective? Perhaps the bottom half of the income distribution scale benefits from the measure, but the very poorest will not benefit at all, because they are not tax payers.

[Catherine McKinnell]

Absolutely. That is why many people, including married couples, will not gain anything from the policy, which is why I am astounded by the vehement support for a policy that does not properly recognise marriage in the tax system, which Government Members are usually keen to do.

To conclude the point that I am making about the impact of the measure, I shall give one example of the women who are particularly hard hit by it: low-paid, new mums, who are losing almost £3,000 during pregnancy and their baby’s first year as a result of cuts to child benefit; cuts to the health in pregnancy grant; the axing of the higher rate of tax credit for families with babies under one; restrictions in the Sure Start maternity allowance; and the Chancellor’s “mummy tax”, which will cost new mums £180 by 2015 in real terms—not to mention cuts in public services and the disappearance of Sure Start centres, with three closures a week, which will impact on mums, dads, families and, indeed, married couples up and down the country for years to come.

The policy is a total turkey in terms of its reach and the benefits it brings. Even the Chancellor thinks so, as does the Chief Secretary to the Treasury—and I am sure that we will hear what the Exchequer Secretary thinks later in the debate—but what about its cost and complexity? Surely, Ministers must have learned from the child benefit fiasco, and would not seek to introduce a new, complex aspect to the taxation system—that fiasco must have given them a few grey hairs—or one that might require significant additional administration and input from the taxpayer. Oh—but they are doing so! Her Majesty’s Revenue and Customs has issued a tax information and impact note on the policy that suggests that it will have an Exchequer impact of £515 million in 2015-16, rising to £820 million by 2018-19.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

My hon. Friend will have attended previous debates on this issue. Indeed, only yesterday in the Chamber, lectures were being given by Government Members about the need to simplify the tax code. Does she not find surprising the support for measures such as the one that we are debating today?

[Catherine McKinnell]

Indeed. Government Members often lament red tape and the complexity of the tax system. I am not entirely sure that they will be thanked for adding to it in this way and putting the burden of implementation on employers.

The apparent onus on taxpayers proactively to apply for this allowance is a concern that has been raised more widely. The Low Incomes Tax Reform Group has pressed the Government to ensure that a claim for the marriage tax allowance can

“be made on paper, as well as online; digital exclusion affects disproportionately people on low incomes, the very people to whom this relief is directed. It is particularly important that a paper copy is available since, in some cases, taxpayers will seek assistance from the voluntary and charitable sector with, perhaps, only one spouse being physically present at such meetings.”

LITRG goes on to urge that

“the claim/election process will be made as simple as possible—preferably a joint election rather than separate claim and election.”

I look forward to the Minister’s response to those concerns.

The complexity of the Government’s marriage tax allowance proposal has been commented on by the IFS, which stated, when the measure was first announced:

“One striking feature of the policy is that it complicates the income tax system. A transferable personal allowance for married couples capped at £1,000 and then withdrawn using a cliff-edge at the higher-rate threshold is not the simplest to understand. It is three years since another cliff-edge at the higher rate threshold was announced at the 2010 Conservative Party conference as a way of effectively means-testing Child Benefit, only to be removed and replaced with a less egregious taper at Budget 2012. The amounts involved here are less than in that case, which perhaps explains the willingness to cliff-edge again rather than implement a taper. Nevertheless, it is difficult to escape the conclusion that an income tax system which makes some people worse off after a pay rise has something wrong with it.”

One might think that, as my hon. Friend the Member for Edinburgh East (Sheila Gilmore) pointed out, a Government who have so boasted about being committed to tax simplification would want to avoid further complicating the system. At the launch of the Office of Tax Simplification, the Chancellor commented:

“A decade of meddling and intervening has made the tax affairs of millions of families and businesses across the UK extremely complicated. We need to sort out this mess.”

What does the Office of Tax Simplification make of the marriage tax allowance, which will clearly make the tax affairs of couples and employers more complex? We do not know because, in the words of the Exchequer Secretary in response to a written question I tabled:

“The Office of Tax Simplification (OTS) has not made an assessment of the proposals for a transferable tax allowance.”—[Official Report, 12 February 2014; Vol. 575, c. 642W.]

Why on earth not? What could Ministers possibly fear from the outcome of such an assessment?

It may be clear now that the Opposition oppose the Government’s marriage tax allowance and will vote against clause 11. We believe that the marriage tax allowance is perverse and unfair. It is a poorly targeted use of resources and is overly complex, and our amendment to clause 11 presses the Government to undertake a proper review of the cost, the impact and the benefits for those who will receive it and for the overwhelming majority of married couples and families who will not benefit at all.

Amendment 3 calls on the Government to ensure that any such review includes an assessment of alternative tax reliefs that would benefit a much greater number of families, because we are not just opposing the marriage tax allowance today. Indeed, we have said that a future Labour Government would scrap this policy and use the money saved, together with funding from a mansion tax on properties worth over £2 million, to reintroduce the 10p starting rate of tax, meaning a tax cut for 24 million people on low and middle incomes, by contrast with the 4.2 million couples who will benefit from the marriage tax allowance. Crucially, almost half of those benefiting from a new 10p tax rate would be women.

We know that the Liberal Democrats are apparently implacably opposed to the policy introduced by clause 11 and secured a deal in the coalition agreement to go so far as to abstain on the measure. I believe it was before the 2010 general election that the now Deputy Prime Minister described the Conservatives’ proposal for a transferable tax allowance for married couples as

“patronising drivel that belongs in the Edwardian age.”

I know that Liberal Democrats have, as some might say, an irritating habit of saying one thing before a general election, then doing precisely the opposite—university tuition fees and the VAT bombshell spring to mind—or of saying one thing at any point in the electoral cycle and doing precisely the opposite: for example, 46 Lib Dem peers voted to retain the bedroom tax just 24 hours after their party president, the hon. Member for Westmorland and Lonsdale (Tim Farron), said it was something his party could not “continue to support”. Although the Liberal Democrats may be thinking about abstaining on clause 11 as it stands, it is difficult to see how they could sit on their hands this afternoon and vote against our reasonable amendment.

We know that the Lib Dems apparently secured the policy of free school meals for every child in reception, year 1 and year 2 from September 2014, reportedly in exchange for agreeing to abstain on the marriage tax allowance. We of course back the policy, having piloted the idea in government in County Durham and Newham, with excellent results, but there are very real concerns about the way in which the policy was announced, and how it will be implemented. The initial pledge was for a “hot, nutritious meal at lunchtime”, but that is now being described as an aspiration. Ministers are now simply referring to a free, nutritious school lunch.

Many thousands of schools across the country simply do not have the facilities to ensure this provision. The Liberal Democrats have stated that around £80 million of the additional £150 million capital funding required for the project will come from an underspend in the Department for Education and an additional £70 million would be new money from the Treasury. [Interruption.]

I hear hon. Members on the Government Benches chuntering from a sedentary position. They seem very disturbed by the Liberal Democrat policy of free school meals and do not see how it is linked to the marriage tax allowance. Would they like to confirm that that was not an agreement, as has been reported?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The advice is not needed. There is a definite link, and if Members were to listen a little more closely, they would understand where the link is between the choice and where the money can be spent. Less advice and more listening might help all of us.

[Catherine McKinnell]

I thank the Deputy Speaker for his clarification. The link is clear. It is to do with the allocation of resources and the agreement that has been made. It also goes fundamentally to the heart of the Liberal Democrats and how they intend to vote on the matter. We believe they are likely to abstain on the measure, although we have not had that confirmed. We hope and assume that although they will abstain on the Government’s motion in relation to implementing the marriage tax allowance, they will support our call for a review. If the measure goes through, they would have as much of an interest as we would in ensuring that it is properly reviewed and monitored in the months to come, and that the Government take seriously the proposals for possible alternatives that benefit a larger number of families throughout the country.

The Opposition believe that the money allocated to the marriage tax allowance could be put to much better use elsewhere. That is why we have pressed the Chancellor to scrap it, and to use the money to give tax help to many more working people instead, including more married couples and more families.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

I am interested that the Opposition want to give tax cuts to hard-working people, yet they voted against the Second Reading of the Bill, which provided a tax cut for 25 million people.

--- Later in debate ---

[Catherine McKinnell]

The Bill is inadequate as it entirely fails to recognise the cost of living crisis facing many households, including families and married couples, throughout the country, and does nothing to address the problems that people are facing. The review proposed by amendment 3 would be an important first step in looking at how the Government can allocate the available resources to help more people than a few carefully selected types of married couples whom they have deemed should benefit.

[Susan Elan Jones (Clwyd South) (Lab)]

Does my hon. Friend agree that one of the problems of the married couples tax allowance as proposed by the Government is the situation of what might traditionally have been called the deserted spouse, often the wife who was left? What would happen in that situation? That is a very real issue to be answered.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. May I say once again that we must have shorter interventions? I know that many Members wish to speak. We have been going for a long time and have not even got to the Back Benches yet.

[Catherine McKinnell]

Although my hon. Friend’s intervention took longer than Mr Deputy Speaker might have liked, it was a very good intervention.

I would be interested to hear what Government Members think about the fact that this provision could very much reward men who desert their spouses, leave them with the children to care for, and then receive a tax benefit, but only if they marry the woman they ran off with.

--- Later in debate ---

[Catherine McKinnell]

I assure the hon. Gentleman that I do not eat tofu, although I do not think that those who do need to be quite so insulted. Are we to assume from his comments that he is wedded to this policy regardless of how inadequate its reach and implementation will be?

[Mr Jackson]

The hon. Lady’s comic timing is exemplary. I will develop my more detailed arguments, if she will allow me, given that she had the thick end of 46 minutes to develop her own. That is probably the record for an Opposition spokesman—or spokesperson—although I accept that it was on the Opposition’s amendment.

This has been a long time coming—

--- Later in debate ---

[Catherine McKinnell]

Does not the hon. Gentleman’s argument highlight the inadequacy of the Government’s proposals, in that they benefit only a third of married couples and only one in six households with children? If they want to recognise marriage in the tax system, they should recognise marriage, not a certain type of marriage and a certain few married couples.

[Mr Jackson]

The hon. Lady is engaging in a certain degree of amnesia. When her party was in government, it took 7% out of this country’s gross domestic product during the financial crisis. It left us with a disastrous legacy of debt and a huge deficit, which meant that we had to take very difficult decisions. We have to lay the blame for that at her party’s door. That is why we cannot be more innovative in how we approach the tax system. We are, as always, constrained by the legacy of a disastrous Labour Government. Labour always leaves office with more people jobless and the country in trouble.

--- Later in debate ---

[Tim Loughton]

During consideration of last year’s Finance Bill, when my hon. Friends and I put forward in an amendment the concept of the married couple’s tax allowance—the hon. Lady can look this up in the record—I specifically said that the allowance would apply both to civil partnerships and to married couples on enactment. That has never been in question, and the allowance should be absolutely consistent. The law now, however I may have voted, is that we recognise same-sex marriages and that the tax and benefit advantages that go with marriage must be applied to those new circumstances. That is not an issue. There are many issues that we may debate, but that is not one of them.

The Labour party did not and continues not to recognise marriage in the tax and benefit system. Labour chooses to ignore the fact that marriage, whether we like it or not, happens to be the most stable environment in which to bring up children. I was slightly surprised by the lengthy contribution of the hon. Member for Newcastle upon Tyne North because, given her previous role as shadow children’s Minister and her great interest and expertise in that area, she did not once elaborate on the benefit for children of an arrangement such as we are seeking to introduce. As far as I am concerned, the heart of what we should be achieving is the creation of greater stability for children, and it so happens that marriages do that best of all.

[Catherine McKinnell]

The Opposition are committed to supporting families and children. The fact is that this marriage tax allowance benefits only one in six households with children and only one in three marriages. Although the hon. Gentleman is making a passionate speech, the policy completely fails to address the issue.

[Tim Loughton]

That is a good reason for going further. The debut of a married couple’s tax allowance in this Bill is a starting point, and it is the first recognition of marriage in this country’s tax and benefit system. I would like to include many more married couples, particularly concentrating on those with children under the age of five. That is where the allowance can have the greatest impact. We need to provide the greatest stability for young children in their most formative and impressionable years.

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I make a call across the Benches: this issue should not divide us along party lines. I say, “Come on; show us where your money is. Do you support marriage?” Then, we will know by the end of today who is on the side of marriage.

[Catherine McKinnell]

We have said very clearly that, rather than giving this tax break to only a third of married couples—some hon. Members say they are in favour of marriage, but only certain types, where one partner in the marriage stays at home—we would put that money towards all married couples and, indeed, all taxpayers by reinstating the 10p tax rate, which would benefit all marriages and all children in those households too.

[Mr Burrowes]

I hear what the hon. Lady says, but I am afraid that will not wash with the electorate. The reality is that the Labour Government abolished recognising marriage in the tax system, and Labour now needs to make up that lost ground and join the mainstream in the other OECD countries and across the world. The Opposition need to recognise that people support marriage.

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[Dr Thérèse Coffey]

Let us consider the following words:

“I believe in marriage, I believe marriage should be recognised in the tax system. I see this as yes, a start of something I would like to extend further”.

They are not mine; I plagiarised them from my right hon. Friend the Prime Minister. I am surprised that the hon. Member for Bishop Auckland (Helen Goodman), who is no longer in her place, was trying to suggest that the Prime Minister did not support this policy, because it was certainly in our manifesto and he is the person who said that from the Front Bench.

I am not married. Do I feel disadvantaged, as a consequence, that I will not benefit from this transferable tax allowance? No, I certainly do not. I will have a warm heart voting for clause 11 to stand part of the Bill, because I believe that marriage is an important institution at the heart of a strong society, as the Government are indicating, and it has been clear for some time that we wanted to bring forward proposals to recognise marriage in the tax system. We have been hearing about how, “You can only spend the money once”, but the Opposition have managed to spend their version of the bankers’ bonus tax about 11 times. So it is a bit extraordinary to hear some of these comments. As has been said, this is about choices. The choices this Government made in this Budget were to reduce income inequality to its lowest level in 28 years, whether through council tax cuts, or through freezing or cutting fuel duty, as we have done in previous Budgets. This Government are certainly helping families of all models in this Budget.

We debated child care yesterday, and it is right that we start supporting marriage. Some are saying, “Oh, 4 million married couples. You are not helping people.” But of course we are helping 8 million people as a result of this measure, and that is to be welcomed. My hon. Friends will note that the Labour party is committed to reversing this tax transfer. It will come in before the election, so Labour is automatically saying to 8 million people, “We will be putting up your taxes because of our dogma.”

I appreciate that the Front Benchers still need to speak in this debate, Mr Caton. What I want to put across strongly is that there is no arbitrary disadvantage, marriage is a good thing and we should support it. We do the same for people who save, by increasing the individual savings account limit. We do it for people who put into pensions, whom we support with tax relief. We do it for businesses that invest in their businesses, helping to create jobs. That is what we are doing and although only a token amount of money is involved here, it will be very welcome.

[Catherine McKinnell]

Will the hon. Lady give way?

[Dr Coffey]

I was about to sit down, but I would be delighted to give way.

[Catherine McKinnell]

The hon. Lady is making a powerful speech in favour of marriage, but does she not accept that the Government proposal does not recognise two thirds of marriages? Where both partners in the marriage are working to provide for their family, that marriage is not recognised as valid in terms of this policy.

[Dr Coffey]

I do not see that that is the case. Of course the Government recognise those couples who are married or who are in civil partnerships—

[Catherine McKinnell]

They do not.

[Dr Coffey]

They certainly do. This measure is a start. We do not have tons of money, and the fact that resources are scarce has been well pointed out. Nevertheless, we are doing things that reduce the income inequality for families across the country, using the long-term economic plan. It has meant that gilt rates have been able to stay relatively low, which means that mortgage rates have stayed low and that is probably doing more for people than anything else, along with our fuel duty freezes and indeed cuts in previous Budgets. Those kinds of things are helping families, be they married or not.

I appreciate that time is short and others are waiting to speak, Mr Caton. I just wish firmly to say that although I am a singleton—I thought I had met Mr Right 20 years ago, but it did not work out—I hope that every married couple benefiting from this will recognise that at least they can go and have a nice wedding anniversary with a little bit more cash from the Government.

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[Mr Gauke]

I am short of time so, if the hon. Lady will forgive me, I will not give way.

Let me deal with a couple more points. On support for women, it is worth bearing in mind that of the 3.2 million people who have been taken out of income tax, 56% of the beneficiaries are women, and we have done a lot to help with child care. On the practical points raised by the hon. Member for Newcastle upon Tyne North, only the transferor will need to make an election, which will make it administratively easier for couples. We also want to implement the measure through a digital process, but we recognise the need for support for those unable or unwilling to use that method. HMRC will be properly funded to deliver this policy.

Let me conclude by reiterating the purpose of the clause. It is to reinforce the important institution which is marriage—whether gay, straight or civil partnerships—while also providing support for many households that have not been able to benefit fully from our changes to the personal allowance. I therefore request that amendment 3 be withdrawn, and move that clause 11 stand part of the Bill.

[Catherine McKinnell]

We have had some sincere but variously aspirational speeches from Government Members today, dreaming of a world where marriages are stable and children thrive. Nobody can take issue with the aspiration, but we need to deal with the real world and what the Government’s policy will deliver. It purports to support marriage, but only certain marriages will qualify. Two out of three marriages will get no recognition at all. The policy purports to support children, but five out of six families with children will get no help whatever. It is a dud. It adds complexity to the tax system. Its implementation will add cost both for HMRC and for the employers who will have to deal with the complexity for highly questionable gain.

We will therefore oppose the clause, and we urge hon. Members on both sides of the House, particularly Liberal Democrat Members, whom we know are on our side of the argument on this issue, to vote against the Government’s proposals and for our sensible amendment.

Question put, That the amendment be made.

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[David Rutley]

I am a regular visitor to Scotland—I normally drive—but I think we should move on to wider issues.

As they stand, the changes to air passenger duty from April 2015 will save business-class, long-haul passengers more than £100. It makes sense to abolish the very high bands of APD. They have caused understandable concerns, with the widespread perception that they were just another example of the unfair tax changes that we inherited from the Labour party. It is right that, as a result of the Government’s decisions, all long-haul flights will carry the same lower band-B tax rate that is paid to travel to the United States, for example. A family of four flying economy to visit relatives or communities in the Caribbean or south Asia will pay £56 less in APD. It is also right and fair that the Government have brought private jets into the scope of APD and that the share of the burden is more easily spread across air passengers.

Government Members believe in tax fairness, and we believe in reducing the burden of tax wherever possible. As my hon. Friend the Member for Crawley (Henry Smith) pointed out, however, it must be a fiscally responsible approach, although that seems to have been completely ignored in the comments of some Opposition Members.

By cutting APD, the Chancellor is again helping to support British exporters, not least first-time exporters looking to make their first steps into high-growth export markets, perhaps by attending international trade fairs or visiting prospective clients and customers abroad. Virgin Atlantic says:

“The Government has rightly recognised the damage APD is having on exporters and the travelling public alike.”

There is a real need to encourage more exports and exporters. As I indicated in my earlier intervention, Lord Livingston recently pointed out that

“only 17% of UK mid-sized businesses generate revenues outside of the EU compared to 25% in Germany and 30% in Italy.”

I am delighted that action is being taken across Government to meet that challenge. Our small and medium-sized businesses have the potential to be economic powerhouses for our economy and to create more wealth and more jobs across all regions of the UK, including Wales and Scotland. To realise that potential, we need to rediscover our great trading heritage and embrace the global opportunities for Great British services and manufactured goods. By cutting APD, we are underlining the commitment of the Department for Business, Innovation and Skills, the Foreign Office and UK Trade & Investment to provide support. Those are positive steps.

International aviation links are not merely important for exporting goods and services from the UK to other countries, or to make more sales missions feasible; lower APD will support UK tourism and help to improve our competitive position in the market for inbound tourists, be they leisure tourists or business travellers in the meetings, incentives, conferences and events sector.

According to Kurt Janson, the Tourism Alliance’s policy director, the Bill’s proposed savings

“will be a benefit for attracting visitors from the growth markets of China, India and Brazil as well as the traditional market of New Zealand and Australia.”

Indeed, PricewaterhouseCoopers suggests that the studies it reviewed for its research

“all point to a link between whole economy productivity and airline sector output.”

By encouraging greater connectivity between the UK and the global economy, reductions in APD can add to the mix of supply-side measures introduced by this Government since 2010. APD is another barrier to productive growth that the Government seek to remove.

This Government believe in long-term thinking. Difficult decisions have had to be made to save us from the appalling legacy that we inherited from the previous Government, but we are now seeing the results of that approach. It has become affordable and fiscally responsible to cut APD and other taxes that have been holding back this country’s businesses and people from realising their ambitions. The Government are helping people to realise their ambitions and objectives in life by working progressively to de-risk entrepreneurialism and support the export industry. For that reason, the measures have my full support.

[Catherine McKinnell]

It is a pleasure to serve under your chairmanship, Mr Bone. It is clear from the contributions and amendments tabled by the hon. Members for Carmarthen East and Dinefwr (Jonathan Edwards) and for Na h-Eileanan an Iar (Mr MacNeil) that APD remains an important issue for many hon. and right hon. Members. Indeed, we have debated APD on the Floor of the House on many occasions, so it is worth briefly reflecting on the coalition Government’s record on APD since they came to power in 2010— a record, as I am sure many hon. Members will agree, of prevarication, indecision and lack of direction.

Before the election, the Conservatives made a commitment to look at a per-plane duty. The report that resulted almost a year later, contrary to the manifesto commitments of the Conservatives and the Liberal Democrats and the coalition agreement, was not taken forward, and for very good reasons. The industry certainly did not support it. Although right hon. and hon. Members on both sides of the Committee will be all too conscious of the need not to take a Liberal Democrat promise at face value, we had certain expectations concerning the coalition agreement.

The Government promised a further review of APD. The consultation covered several areas including private jets, different tax bands, premium economy flights, flights from regional airports and the possible devolution of APD. The consultation paper raised the concern that the existing four-band structure was damaging the UK’s competitiveness and contained several anomalies, such as a higher rate for Caribbean flights than for other destinations in the USA. That was a source of concern for many hon. Members, which, given the announcement in this year’s Budget, the Government seem to have taken on board. The consultation lasted the best part of a year and numerous interested parties took considerable time and effort to respond constructively and in good faith.

What was the result of that long and arduous process, which, including the first consultation, spanned the best part of two years? It was next to nothing. Aside from the extension of APD to cover business flights, we have seen no changes to APD across the UK. That period of time has been described by industry players as

“a sham and a waste of taxpayers’ money.”

There were three full years of promises, yet the Government delivered next to nothing. Three wasted years—a phrase that is synonymous with the coalition Government, whether in respect of APD or, more broadly, the flatlining economy that we have seen for most of the Chancellor’s time in office.

In this year’s Budget, choices were made that, notwithstanding the years of delay and the further year of delay ahead, have been cautiously welcomed by much of the industry. The third coalition U-turn in this area in as many years means that there will be some relief for long-haul flights in the form of lower rates of APD. Let us not forget that APD on all flights of more than 2,000 miles will be uprated by RPI this month. That comes on top of the large increases over the past few years, including the 8% rise that the Chancellor announced in Budget 2012, which was double the rate of inflation.

Budget 2014 saw the announcement or re-announcement—I am not entirely sure which, as Ministers will not give me a straight answer—that the Government will provide funding to aid start-up routes at smaller airports. The regional air connectivity fund, as it will be known, will help new routes from regional airports according to the Red Book, but Ministers do not seem to know which airports or new routes will be eligible or what the fund may be spent on. Although any new support for new air routes is clearly welcome, the proposal seems to bring yet more uncertainty for the aviation industry, the like of which it has already endured for years.

Clearly, that support could be of most value to the constituents of the Members who have tabled the new clauses and the new schedule. Perhaps the Minister will enlighten the Committee and reassure hon. Members about what support their regional airports can expect to receive from the fund.

[Hywel Williams]

While the hon. Lady is talking about enlightening the Committee, will she enlighten us as to where her Welsh Labour colleagues are? There is a Welsh Whip lurking at the far end of the Front Bench. Perhaps he will give us a clue.

[Catherine McKinnell]

We have been very clear on numerous occasions that Labour remains to be convinced of the merits of devolving APD. We do not believe that it is necessarily the correct way forward at this stage.

We acknowledge that the Government have made some notable changes to APD in Northern Ireland. The Chancellor announced in September 2011 that APD rates on long-haul flights using airports in Northern Ireland would be cut because of the threat of competing routes from the Republic of Ireland to the transatlantic route from Belfast to Newark airport in New York, which is critical to the Northern Irish economy. Continental Airlines had been paying APD, unsustainably, at a cost of £3.2 million a year. Following the Finance Act 2012, APD on long-haul flights departing from Northern Ireland was devolved to the Northern Ireland Assembly, which abolished it on 1 January 2013.

I know that right hon. and hon. Members, and anyone who has engaged in this debate over the past few years, will be all too aware of those facts. However, it is important to remind the House of them, so that it can better understand the new clauses and new schedule. Flights in Northern Ireland clearly face specific challenges. As I and other Labour Members have noted before, it is the only part of the UK that shares a land border with another EU member state. George Best Belfast City airport and Belfast International airport compete directly with Dublin in attracting airlines, routes and passengers. The Opposition supported the Government’s move on APD on long-haul flights from Northern Ireland, given its unique international land border and the fact that Northern Ireland largely relies on air transport for its link to the rest of the UK.

[Mr MacNeil]

Is aviation not about more than competition? It is also about growth. When Governments get their head around that, we will surely see a sea change in their approach to APD. They should focus on growth, not just competition.

[Catherine McKinnell]

The hon. Gentleman makes an important point, and I entirely agree that the Government should be absolutely focused on economic growth. The debate about APD is part of that discussion, and the regional air connectivity fund must also be part of the conversation. The Government need to provide clarity on those issues in this Finance Bill and in the future.

As I said, Labour remains to be convinced of the merits of devolving air passenger duty. The Calman commission proposed that it be considered, and the Labour Government committed to keep it under review.

[Jonathan Edwards]

The hon. Lady made a telling point in response to my hon. Friend the Member for Arfon (Hywel Williams) when she said that the Labour Treasury Front-Bench team remained to be convinced of the position taken by the Labour Government in Wales. As she knows, the Labour Government are in direct intergovernmental negotiations with the UK Government’s Treasury team. If the First Minister and the Welsh Government cannot convince their own party, what credibility can they have in those vital negotiations with the UK Government?

[Catherine McKinnell]

I have said clearly that the Labour party remains to be convinced of the merits of devolving APD, but let us remember that the Wales Bill that is currently going through Parliament contains a number of devolved tax powers for Wales and is the appropriate place to debate these issues in the round. Labour’s devolution commission in Scotland considered the matter again and argued that devolving APD within the mainland of Great Britain would generate unhelpful tax competition within the UK.

[Hywel Williams]

I am intrigued. The hon. Lady says that Labour remains to be convinced about devolving APD. Has she told Carwyn Jones?

[Catherine McKinnell]

As I said, the Wales Bill, which is currently going through Parliament, contains a number of devolved tax powers for Wales and is the appropriate place to debate these issues. That is why Labour will abstain on the issue of APD devolution tonight, but we look forward to the Exchequer Secretary providing clarity on the various queries that have been raised today, particularly about the regional air connectivity fund, which is clearly linked to the issues of certainty for investment, growth, which all Members are focused on, and the role that aviation plays in our economy.

[Mr Gauke]

In 2010, the Government inherited an air passenger duty system that needed to be fixed. The changes that the previous Government made in late 2009 caused aggravation to the UK’s overseas friends and frustrated diaspora communities. Clauses 72 to 74 will fix the system by implementing air passenger duty rates for this year and by reform of the rates for next year.

I will address new clause 2 and new schedule 1, tabled by Plaid Cymru Members, and new clauses 6 and 7, tabled by Scottish National party Members. The Plaid Cymru proposal broadly follows the form that was taken to devolve the duty on direct long-haul flights from Northern Ireland, and requests a similar devolution for direct long-haul flights from Wales. The SNP proposals seek the devolution of duty on flights to all destinations.

I remind hon. Members that the devolution of duty for Northern Ireland was in specific response to Northern Ireland’s unique circumstances. It shares a land border with Ireland, leading to a risk of flights relocating from one part of the shared land mass to another. We recognised that risk and acted to ensure that Northern Ireland was not disadvantaged.

The current situation is that airports on the Great Britain mainland face the same APD rates, but the SNP and Plaid Cymru proposals could well lead to the introduction of the same market distortions that our devolution to Northern Ireland sought to prevent, namely the reallocation of flights from one part of the UK to another, leading to distortion in competition, and winners and losers across the UK.

Regional airports are doing well: 2013 was the third consecutive year of passenger growth and our APD banding reform is another confidence boost for the air travel market. Relevant examples include Cardiff airport, which in 2013 saw a 4% increase, equating to around 44,000 extra passengers, with new routes announced to Germany and the Caribbean. In Scotland, there has been 3% growth at Glasgow airport, with almost 206,000 additional passengers. New routes have been announced for this summer to Croatia and Greece. Edinburgh airport has grown 6%, equating to more than 580,000 additional passengers. In the past six months, new routes to Qatar, the USA and Norway have been announced.

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[Mr Gauke]

I am grateful to my hon. Friend because he brings me to my next point. I agree with him. The Government recognise the importance of aviation connectivity for all parts of the UK—for example, domestic flights are not subject to VAT. As he says, we are extending the scope of the regional air connectivity fund to include start-up aid for new routes from regional airports, and increasing funding to £20 million a year. Clearly, exactly how that works is a matter for the Department for Transport, but I welcome the fact that the Government are consulting the regional airports to see whether those that have more than 3 million passengers per year can receive extra support. That includes Newcastle airport, which has 4.4 million passengers. One could also mention East Midlands International, Liverpool John Lennon, Belfast International, Aberdeen, London City and Leeds Bradford, all of which have more than 3 million passengers a year. We are trying to do what we can to ensure that those airports can gain support from the connectivity fund.

[Catherine McKinnell]

Obviously, we broadly welcome any support for expansion and new routes from regional airports, but would the Minister accept that making an announcement without any details about the type of activity that will be covered by the funding can add uncertainty to the already difficult environment for the industry at present? It is imperative to bring some clarity to the issue as soon as possible. Will he tell us when he will be able to clarify what might qualify for the funding?

[Mr Gauke]

The hon. Lady is being uncharacteristically glass half empty. We have announced an expansion of the connectivity fund. We have said that we are seeking to take that beyond airports that have more than 3 million passengers per annum. As it happens, the Department for Transport is consulting on and developing guidelines for accessing support, and the results will be published in the summer. I am sure that the hon. Lady is as keen as my hon. Friend the Member for Hexham (Guy Opperman) to ensure that the best happens for Newcastle airport.

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[Mr Gauke]

My hon. Friend is right. As I say, the Department for Transport is developing these guidelines with the intention of publishing in the summer.

[Catherine McKinnell]

rose—

[Mr Gauke]

I am sure that the hon. Lady—I think she has Newcastle airport in her constituency or at least nearby—will take this opportunity to welcome what the Government are doing.

[Catherine McKinnell]

Newcastle international airport is in my constituency—[Interruption.] However, I speak on behalf of all the regional airports. I am not being churlish about the potential funding that has been announced, but I hoped that the Minister would realise the increased commercial uncertainty that can be created by making announcements that lack clarity about what may or may not be included. The Government need to move as fast as possible to create—

[The Temporary Chair (Mr Peter Bone)]

Order. Interventions are getting longer than some of the speeches.