Beer Duty Escalator
Charlie Elphicke Excerpts(11 years, 6 months ago)
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Richard Fuller (Bedford) (Con)
I very much welcome this debate and would like to draw attention to two aspects. I want to call for the economic and social impacts, both of which are equally important, to be covered in the review.
On the economic impact, there is the principle of the automatic above-inflation tax increases enshrined within the escalator principle. I shall address myself directly to the Minister, who is new to his post. I do not wish to test his mettle today, but he will be keen to make an impact so I ask him this. What ethics lead to a Government’s presuming that they should increase taxation—automatically, year on year—on such staples of life as beer and fuel? I can think of no more regressive taxation than to continue with above-inflation increases on those items.
We have already had a debate on the automatic fuel duty escalator; I am sure that the Minister heard the strong voices of those on the Government Benches arguing that the Government should abandon that policy. The same applies to beer duty. Many hon. Members have talked about the economic impact of the brewing sector in their constituencies. My constituency of Bedford is home to the largest family-owned brewery, Charles Wells, maker of Bombardier beer. What could be more patriotic than drinking Bombardier beer on St George’s day—or, indeed, any other day of the year?
Brewing is now taxed at 50% of its turnover. A 50% tax on brewing turnover will almost certainly tax our brewers out of existence. This is not an issue that the Treasury can avoid, and that is why so many hon. Members have spoken in favour of the motion.
Richard Fuller
I will not, if that is all right, because time is limited.
I would like to mention the social aspect of pubs. As part of “MP in a pub” week, which must be one of the easiest campaigns to organise that I have heard of, I met Nickie and Roger McGlory at The Half Moon. I am sorry for the impact on the profitability of The Half Moon during my session there! I have also spoken to Nigel and Sue Anstead at The White Horse, who, every single week, do something to support local charities and endeavours. This Saturday, many of us will be joining Paul Davies at The Cricketers Arms as Bedford Blues rugby club gets ready to thrash Newcastle in a very important game. Whether it has to do with sports or charities, pubs are an essential part of what we do in our communities.
The vital point, as several hon. Friends have said, is the role of pubs in ending pre-loading. When the Minister deals with this issue, will he also consider the imposition of minimum pricing such that the health benefits can more than outweigh the reduction in revenues from scrapping the beer duty escalator?
Multiannual Financial Framework
Charlie Elphicke Excerpts(11 years, 6 months ago)
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Greg Clark
The hon. Gentleman may have known me for a long time but he has a faulty memory. It was his Government—he served, I think, as Europe Minister in that Government—who gave away half of our rebate, which caused the increase that we have seen.
Though they are ready to lecture others on fiscal discipline, it is fiscal incontinence that characterises the approach of the European institutions. Administrative costs need to be hammered down to bring them into line with the modern world, yet the response of the Commission’s spokesman has been little short of insolent. The British Government asked the Commission to model cuts of €5 billion, €10 billion and €15 billion to its staffing budget, and the Commission refused. Its spokesman said:
“We declined as it’s a lot of work and a waste of time for our staff who are busy with more urgent matters…we are better educated than national civil servants. We’re high fliers, not burger flippers”.
As the Prime Minister has pointed out, one in every six of the Commission’s employees earns over €100,000 a year. The ordinary working people of this country have run out of patience with the attitude displayed by the Commission. The British public are ready to make sacrifices to put Britain back on its feet, but not to featherbed a self-styled elite and its agenda. We are not rolling back wasteful public spending in this country only to see it re-imposed from Brussels.
Charlie Elphicke (Dover) (Con)
My right hon. Friend is far too generous to the Labour party on the matter of the rebate. The House will recall that for every one of the 13 years of Labour government, there were above-inflation increases in the European Union.
Greg Clark
My hon. Friend is totally right. The last time the country had the misfortune to be in the hands of a Labour Government, including the shadow Foreign Secretary, who was Europe Minister at the time, far from agreeing even a real-terms freeze or a cut, they increased the budget over seven years by 8%. That is the record of the Opposition.
It is not just the overall total. Once more we see the usual suspects circling round Britain’s budget rebate. That rebate was secured for future generations by Margaret Thatcher at Fontainebleau—the rebate which Tony Blair and his Europe Minister, now the shadow Foreign Secretary, put on the table in 2005, in the negotiation of the current multiannual financial framework. Of course, when I say negotiation, what I mean is unconditional surrender, giving away in perpetuity a large part of the rebate in return for nothing. If seven days is a long time in politics, seven years is even longer. The amendment to the motion would delete all mention of this betrayal. The act would be forgotten, but the consequences have not gone away.
Infrastructure (Financial Assistance) Bill
Charlie Elphicke Excerpts(11 years, 8 months ago)
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Danny Alexander
I had the pleasure of spending some time in Cornwall earlier this year, and of driving down that stretch of road. I understand the case that my hon. Friend makes. It has been made to me by Cornish colleagues from both coalition parties, and we will of course look sympathetically at any requests that might be made. It is always welcome to see local funding coming forward, and to see a local area taking responsibility for what it wants to do.
Charlie Elphicke (Dover) (Con)
The way in which the guarantees will be structured will be incredibly important for the planning by the financiers who wish to unlock these important projects. Will this involve credit support for the land or undeveloped infrastructure, credit support for the development finance piece, or credit support for the off-take or use of the infrastructure at the end of the day?
Danny Alexander
As I shall explain, we are not seeking to circumscribe unnecessarily the nature or structure of the guarantees, either through the Bill or through the announcements that the Government have made. We are willing to have discussions with those involved in projects that meet the criteria that have been set out, and it might well be that different structures of guarantee will be appropriate for different projects. I do not wish artificially to circumscribe the flexibility of the scheme in advance of the discussions with the individual projects. I am sure that those involved in the projects will be well able to have discussions with Infrastructure UK about the nature of the guarantee that would suit them best.
I was explaining the convention that the Government should not rest significant expenditure under common law powers on the sole authority of general supply legislation. Accordingly, to offer the support we want to see, Government need Parliament’s authority to incur expenditure in connection with agreements to provide financial assistance and to pay out on liabilities should they be called upon.
Today we seek authority for the Treasury to incur up to £50 billion of expenditure in connection with giving financial assistance to infrastructure across the UK. That financial assistance might take the form of guarantees, loans, indemnities or other support backed by public funds. It could be used—
Danny Alexander
The Secretary of State will have to make a decision in the normal way. I am sure that he will have heard my hon. Friend’s comments, and I shall ensure that they are passed on.
Danny Alexander
I must make some progress, but I will give way again later.
Housing guarantees, alongside a wider package of housing and planning reforms, will contribute to the construction of up to 70,000 homes, including affordable housing, and opportunities for first-time buyers to get on to the housing ladder. That will ease conditions in overcrowded and overpriced residential areas, and will enable people to locate near to jobs.
The steps that we plan to take, and which the Bill enables us to take, will help more companies in a wide range of sectors to grow and flourish, not just in the south-east of England but throughout the UK, and will give more people access to a wider range of opportunities. The benefits will also be felt in Scotland, Wales and Northern Ireland. The UK’s hard-won fiscal credibility should benefit the whole of the UK.
Danny Alexander
I hear the case that the hon. Gentleman is making. We have made important announcements recently, particularly in relation to rail links in and to Wales, which I hope he welcomes. I will not support specific projects that may be in gestation, but we will work with the Welsh Assembly Government, who are principally responsible for such proposals. If there are projects for which a guarantee is appropriate, we will consider that very positively in the light of the representations made to us.
As the hon. Gentleman will know, great interest has already been expressed by investors and those involved in projects since the UK guarantees idea was launched six weeks ago. Since then, about 40 companies and project sponsors have come forward, responsible for projects worth well over £5 billion and covering high-priority investment in areas such as energy, transport, water, waste and telecommunications. Detailed discussions are already taking place with, for example, those involved in the Mersey Bridge Gateway project, which is considered to be one of the world’s top 100 infrastructure projects. We have also indicated that we would be willing to consider a guarantee relating to the green deal.
There should be no doubt that the Government are in a position to deliver this policy, and the investment it will unlock, only because of the decisive action that we have taken to reduce the deficit, and the credibility that that has secured for this country. When we came to office, the UK taxpayer was paying interest rates comparable to those of Spain and Italy. Were that still the case, the course of action that we are taking now would be impossible. Because we made tough decisions to regain control of our public finances, we now enjoy interest rates of only about 2%. That is the result of a responsible approach to spending and a credible long-term commitment to regaining control of the public finances.
Despite those tough decisions, we are already spending more on critical transport and communications infrastructure directly as a Government than was spent at the height of the spending boom. We are providing £18 billion-worth of rail investment, supported by the spending review, and a further £9.4 billion of infrastructure enhancements for the rail network was announced in the summer. Ten super-connected cities—the hon. Member for Swansea referred to super-connectivity—will enjoy ultrafast broadband and high-speed wireless connectivity as a result of Government investment, with funding set aside for a further 10. We are also focusing on how we can reduce burdens and keep costs low so that investment, whether public or private, goes as far as possible.
Last week we announced a package of measures to reduce burdens on business still further, including the reform or removal of more than 3,000 regulations to reduce their impact. That constitutes the most ambitious action ever proposed by a modern British Government to set business free. Our spending plans have prioritised capital spending that supports balanced sustainable growth across the country, and our efforts to reduce burdens on businesses mean that investment has gone even further. That approach is producing results despite difficult conditions. More than 1 million private sector jobs have been created under this Government, and this year we rose from 10th to eighth in the World Economic Forum rankings of international competitiveness. The Bill could allow us to unlock even more investment without placing material additional burdens on the public finances, enabling the Treasury to support infrastructure delivery so that we can make better use of private sector finance, skills and incentives, while also managing exposure to the taxpayer.
Under the previous Government, the UK fell in the infrastructure world rankings from seventh in 1998 to 33rd in 2009—behind Namibia, Slovenia and Cyprus. We are now up to 24th and taking the necessary steps to make the further improvement this country needs. There can be no argument with the view that we are delivering far more than under the plans we inherited from our predecessors.
The Bill contains appropriate safeguards and checks to ensure transparency and accountability to Parliament for actions taken under it. It imposes an upper limit on the amount of expenditure that the Treasury and Secretary of State may incur, which can be increased through affirmative resolution. It also requires the Treasury to update the House regularly. In answer to a point that was made earlier, where expenditure is charged on the Consolidated Fund, the Bill requires the Treasury as soon as practicable to lay a report before Parliament specifying the amount paid. Any expenditure or contingent liabilities will be reported in the whole of Government accounts.
Charlie Elphicke
One of the key sensitivities is that one does not want a guarantee to end up like quantitative easing, whereby guarantees are issued and nothing actually comes out the other end. To what extent and how will the Treasury monitor the situation, to ensure that this is a results-based guarantee that brings forward such projects and really makes them happen?
Danny Alexander
I am not sure I accept my hon. Friend’s characterisation of quantitative easing. One of the strengths of the tight fiscal policy that this Government have run and will continue to run is precisely that it allows the monetary activism that we have seen in this country and, indeed, in other parts of the world. However, he is right that the purpose of the Bill is to enable infrastructure projects to come forward quickly. That is why one of the key criteria by which we will decide whether to issue a guarantee to a particular project is that it can get under way within 12 months of the guarantee being issued, and that it has the necessary consents in place. This is about bringing forward projects now; it is not about offering guarantees now for projects where nothing will happen for many years to come.
Charlie Elphicke
Can the hon. Lady clear up a bit of confusion? Today, she wrote in The Guardian that the Labour party would fix all this with a bankers bonus tax to build new affordable homes. However, it seems that this tax has been spent a number of times. Back in March, the Leader of the Opposition said it was going to be used to fund the young unemployed. Which is it?
Rachel Reeves
The bank bonus tax is being used to do two things: first, to create 100,000 jobs for young people; and secondly, for the construction of 25,000 new affordable homes. The Opposition believe that the priority right now is construction and getting young people back to work. The Government believe that the priority is a tax cut for the bonuses. That just shows how out of touch this coalition Government are.
Nothing better illustrates the long-term costs of this Government’s short-sighted complacency than the shocking shortfall in infrastructure investment. If we want to build a productive, competitive economy for the future, we need to invest in the road and rail systems that keep this country moving; in the energy supplies that power our industries; in the information and communication networks that turn ideas into real innovations. With study after study confirming Keynes’s original insight—that construction projects can maximise the multiplier effects of new investment, creating skilled jobs in the construction sector as well as in engineering and design—there is no better time than now.
Instead, we have had from this Government countless speeches, statements and strategy documents. People are asking, “Where is the delivery?” As the CBI is asking, where are the diggers on the ground? When are we going to start turning blueprints into bricks and mortar? It was the Prime Minister who said,
“This autumn, the government is on an all-out mission to unblock the system and get projects underway”.
That sounds promising—until we realise that he said this a year ago. Since then, what have we seen? None of the road building projects in the autumn statement package have begun construction. The number of housing starts is down on 2011. Planning applications are taking longer to approve. I agreed with the Prime Minister when he said:
“In terms of job creation today, getting construction projects off the ground is critical.”
But in the year since he told us that barely one in 10 of the projects listed in the Government’s construction pipeline have moved forward to procurement or construction, and almost as many of them have moved backwards. Total UK construction output is down by more than 10% and last week’s jobs figures showed that the number of jobs in the construction sector has fallen by 89,000, bringing the total number of construction jobs lost since this Government came to power to 120,000.
The Deputy Prime Minister has promised that support for infrastructure and other private sector projects from the regional growth fund would offer a
“boost to business, which will jump start growth and create jobs that last in the places that really need it.”
That sounds like just what we need, but that was said a year ago. We know that since then just £60 million of the promised £1.4 billion has been released to businesses, creating barely 5% of the 37,000 jobs promised.
The Chancellor of the Exchequer announced £20 billion in new infrastructure investment to be funded by the pension funds—that was a year ago. We now know that this scheme will be launched next year, with funds amounting to only a tenth of what was promised back then. As the failure of this Government’s promises increases, their rhetorical displays have become ever more strident. Two weeks ago, in response to questions from my right hon. Friend the Leader of the Opposition, the Prime Minister said:
“If we look at what is planned by this Government, we see that between 2010 and 2015 we will be investing £250 billion in infrastructure.”—[Official Report, 5 September 2012; Vol. 549, c. 230.]
It is true that the national infrastructure plan sets out £250 billion-worth of projects— would government not be easy if you were judged only on what you had planned? If we look instead at what has been delivered, we see that the picture is rather different. The Office for National Statistics shows that new infrastructure orders since the second quarter of 2010 average less than £2 billion a quarter. At this rate, it will take not five years but more than 30 years for the Government’s grand plan to be delivered. The latest construction output figures released last week show that progress is slowing, not accelerating. It is no wonder that the director general of the British Chambers of Commerce has described the national infrastructure plan as
“hot air, a complete fiction”.
Oral Answers to Questions
Charlie Elphicke Excerpts(11 years, 8 months ago)
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Charlie Elphicke (Dover) (Con)
If the Government were to adopt that unfunded mandate and the other £200 billion of unfunded borrowing suggested by the Opposition, what would be the effect on interest rates and our national credit rating?
Finance Bill
Charlie Elphicke Excerpts(11 years, 10 months ago)
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Nigel Mills
It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.
Charlie Elphicke (Dover) (Con)
Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?
Nigel Mills
My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
Charlie Elphicke
I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.
The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.
My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.
The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:
“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”
I want to plead for caution on the part of Ministers and ask them to consider carefully the question of tackling the underlying abuse, which is the business of disapplying the option to tax. I appreciate that many Members will find that exceptionally dull, as it involves highly technical VAT law, but my principal concern is that it is a hard thing to raise VAT across the board for 250,000 people when one really wants to target the few people who are playing the system to get more tax money for their businesses at the expense of everyone else and of the UK Treasury.
Mr Gauke
It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.
My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.
I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.
Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.
New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.
On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until
“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”
This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.
Catherine McKinnell
I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism involved in jumping up and raising a question about regulation, which is entirely irrelevant to the matter that I was discussing.
Charlie Elphicke
The issue had an enormous impact on the amount of taxes paid in this country. Why were interest rates being rigged by the previous Government, according to the memo?
Madam Deputy Speaker (Dawn Primarolo)
Order. The subject before us is what we will be debating, Mr Elphicke; we do not need to be sidetracked at this stage. I call Catherine McKinnell.
Catherine McKinnell
Yes. I think that we all shuddered when we heard the proposals put forward by the Prime Minister which will mean that under 25-year-olds must either live at home or become homeless.
The youth contract, which was introduced only in April this year—too little, too late—offers very little extra, with no guarantee of a job, no guarantee of the minimum wage, but what the Government call “personalised support”, which we know from leaks could be little more than a weekly text message.
I am surprised that Government Members are not jumping up to proclaim the Government’s success with apprenticeships. Even with apprenticeships, it is difficult to believe the figures on the tin, particularly after McDonald’s recently revealed that it had spent £10 million of Government funding but had not created a single new job. The money was used to fund career progression for existing staff. That may be a worthy aim, but this is not the dawn of the apprenticeship revolution that the Government would have us believe.
Charlie Elphicke
Would the bank bonus tax proposed in the new clause be in addition to or replace the Government’s bank levy?
Catherine McKinnell
I am happy to confirm that it would be in addition to the levy. We raised £3.5 billion from the bank bonus tax in 2010-11 and would like the same amount to be raised again.
Catherine McKinnell
I am going by the OBR’s figures. I suggest that the Government do the same if they want to take advantage of this opportunity.
It is clear that we need action on jobs for young people. The bank bonus tax would bring in the money that is needed to create the real, paid jobs that will give under-25s the start that they need to get into the job market. That money could put £100,000 young people into jobs. Austerity on its own clearly cannot do that. The cuts are going too far and too fast, are choking off the recovery and are making it harder for people to get into work. We need an extra stimulus.
Rather than give the banks a tax cut this year, we want to make them pay their fair share of tax. We would use that money to give young people the start that the Government’s hotch-potch of schemes is failing to provide. That is what the new clause would achieve and I urge hon. Members to support it.
Charlie Elphicke
I am extremely grateful to have the opportunity to speak in this debate.
It is important to distinguish between the policies of the previous Government and those of the current Government. The bank bonus tax and the bank levy have a different ethos or philosophy. The original bonus tax—Members will correct me if I am wrong—was intended to be a one-off measure. In the March 2010 Budget, the Labour Government confirmed that the tax would not be extended, even though the gross yield proved to be higher than had been forecast.
Grahame M. Morris
Does the hon. Gentleman agree that part of the problem with the banking crisis is the excessive bonus culture? Perhaps shareholders and Governments should have dealt with that, but we will discuss that on Thursday. Is this proposal not an attempt to address that issue and to ensure that those with the broadest shoulders, who have done so well over the past 10 years with their huge bonus payments, make a contribution now that times are tough?
Charlie Elphicke
The hon. Gentleman makes an interesting point, but there are two problems with his argument. First, the tax would fall not on the greedy employees and bankers whom he wants to whip, but on the bank. Secondly, during his Government’s period of office—he will correct me if I am wrong—Fred Goodwin received some £15 million in bonuses, which he paid tax on at the old tax rate. The hon. Gentleman is therefore seeking to close the door after the horse has bolted.
Grahame M. Morris
The hon. Gentleman is being very generous and accommodating, as always. Does he know what the bonus figure has been for Bob Diamond over the past two years, while the hon. Gentleman’s Government have been in office?
Charlie Elphicke
For me, the issue is the size of the bonuses not in the private banks, but in the taxpayer-owned banks. That is the real concern that we ought to be focusing on. That is why the Government’s bank levy is the right way forward.
Charlie Elphicke
Let me develop my point and I will then take further interventions.
The Government’s bank levy is the right way forward because if we take too much money out of the banking system, we will be pulling out capital. If we pull out too much capital through taxation—or, indeed, through dividends—we will constrain the ability of the banks to lend. We have a crisis in which banks are not lending because they are hoarding capital. If we pull more capital out of the banking system, it will constrain the granting of mortgages and loans to small businesses. In my constituency, that is an important issue, because many small businesses are having great difficulty in getting the lending that they need.
Catherine McKinnell
I appreciate the argument that the hon. Gentleman is making, but is he not aware that long-term youth unemployment in his constituency has risen by 100% since this time last year? Does he not think that desperate action is required to bring that figure back down to zero?
Charlie Elphicke
I am all too aware that my constituency has had a difficult time and that youth unemployment has been rising. It rose significantly in the last Parliament under the previous Government, who completely mismanaged the economy. I welcome the fact that the jobseeker’s allowance count in my constituency has fallen in the latest figures. That is really positive. All of us are, of course, concerned about unemployment and want to see more jobs and money. That is why we need to get the banks lending again. That will help businesses to expand and to create the jobs, money and prosperity that we want to see.
Mark Lazarowicz
I am a little unclear about the logic of the hon. Gentleman’s position. He is against taking money out of the banks in the form of a bank bonus tax because it would affect the capital that they can lend to businesses. I think that is a fair assessment of his position. However, that criticism also applies to the bank levy that his Government are in favour of. How is it that he is in favour of a bank levy that takes capital out of banks, but against a bank bonus tax that is paid for by the people who get the bonuses?
Charlie Elphicke
My position is that the bank levy strikes the right balance. That is why I asked the shadow Minister whether her proposal would be in addition to, or an alternative to, the bank levy. That is significant. She is arguing, on the gross figures, for more than £3 billion more to be pulled out of the banking system. That would have an immediate effect on the capital that banks can lend to small businesses and hard-pressed home owners.
Bill Esterson
The hon. Gentleman says that his solution is to get the banks lending again. This Government have categorically failed at that. What we are coming forward with is a concrete set of proposals. He has acknowledged that youth unemployment in his constituency is a problem and that it has doubled since his Government came to power. Why will he not accept concrete proposals that would deal with the blight that faces many young people in his constituency?
Charlie Elphicke
The hon. Gentleman is simply suggesting that we give with one hand and take away with the other. He might think that he can throw lots of money at dealing with the problem of youth unemployment, but he would meanwhile be constraining businesses in getting the capital that they need to create new jobs and maintain their existing jobs. That is the central flaw in the Opposition’s argument. They want to take more money out of the banking system when capital and lending are already constrained.
The issue that we need to deal with is bonuses. The Government have taken action on bonuses in the taxpayer-owned banks. They have said that there will be no cash bonuses of more than £2,000 at the taxpayer-owned banks. It is right to have longer-term share incentivisation schemes, which align people’s interests with the success of the banks over the longer term.
Grahame M. Morris
The hon. Gentleman is developing an interesting argument. Does he agree that bonuses have been too high not just in the state-owned banks but in the privately owned banks, and that shareholders should do their duty and exercise some control over bonus pots? Bonuses have been paid in banks, such as Barclays, where performance has clearly not justified them.
Charlie Elphicke
Shareholders have been exercising control. Under this Government we have seen the shareholder spring and real action by institutional investors to restrain pay in the boardroom, which grew so much under the previous Government. Under the current Government, there has been action to ensure that shareholders have far greater power over remuneration reports and can push down the excessive rewards that have been given for not enough success.
It is right that an honest day’s work means an honest day’s pay and really good work deserves really good pay, but it is fundamentally wrong to say that the Government have not taken action. They have encouraged shareholders to do their bit as business owners to ensure that we do not have the excessive pay of yesteryear. A responsible Opposition would say, “We congratulate the Government on ensuring that excessive pay is stopped, and we take responsibility for the fact that when we were in government, we allowed a something-for-nothing culture in which everyone knew the price of everything and the value of nothing.” We need an understanding of the value of things once again. The Government have got it right by saying that there will not be excessive bonuses in the taxpayer-owned banks. Although the Project Merlin agreement was not perfect, it was a move in the right direction, as is the permanent bank levy that the Government have introduced, which raises £2.5 billion a year.
Bill Esterson
The hon. Gentleman keeps saying that the amount raised by Labour’s levy was lower than £3.5 billion, but the Office for Budget Responsibility has given only one figure. Can he confirm what it was?
Charlie Elphicke
The OBR has given so many different figures that I do not know exactly which one the hon. Gentleman is referring to. I will read him what Lord Sassoon said:
“The net yield raised by the bank payroll tax is estimated to be £2.3 billion, while gross receipts were £3.45 billion. An explanation of the methodology underlying the estimate of net yield can be found in”
a previous written answer. He continued:
“In line with guidance from the Office for National Statistics, the yield from the bank payroll tax was allocated to the 2010-11 tax year, as this is the point at which the tax was passed into legislation.”—[Official Report, House of Lords, 20 January 2011; Vol. 724, c. WA57.]
The current Government’s levy on banks therefore raised more than the previous Government’s levy.
The previous Government said that their levy was meant to be a one-off, but now Labour is in opposition it is saying, “Let’s make it permanent.” It also wants to make it additional to the permanent bank levy, and it is using the recent scandal, of which Barclays is the first bank to be found guilty publicly, as an excuse to do that. It should be more responsible in opposition than that.
Bill Esterson
As the hon. Gentleman will not admit to the figure that the OBR gave for Labour’s levy, I will tell him that it was £3.5 billon. The Government set up the OBR as an independent organisation to give such figures, so I am absolutely amazed that he will not rely on it. That is nearly double the amount raised by the current bank levy in its first year, and significantly more than is predicted for coming years. As we have heard from the shadow Minister, the predicted figure is falling because of the recession that has been created in Downing street.
Charlie Elphicke
I believe that the OBR’s figure was for gross receipts, which were not £3.5 billion but £3.45 billion. We need to examine the net yield raised, which was £2.3 billion. That is a lower figure than the £2.5 billion raised under the current Government’s system. I appreciate that the difference between net and gross can be confusing, because not all of us are accountants—I certainly am not. Nevertheless, more cash is coming through the door under the current Government’s arrangements.
The hon. Gentleman’s argument misses a central point, which is that the Opposition want their bank bonus levy to be an additional impost on the banks. My concern is that that would pull more capital out of the banking system. Right now, we need to lend to business and kick-start the economy.
Grahame M. Morris
The hon. Gentleman says that accountants know the cost of everything and the value of nothing, but how does he weigh the cost to the banks against the cost to this lost generation—the 100,000 people in Dover, Easington and the constituencies we represent—consigned to a life on the dole?
Charlie Elphicke
If we get lending going again, the economy growing again and decent private sector jobs creating more wealth as a nation, we will do better over the longer term. Having short-term measures to create jobs out of thin air—the 100,000 jobs that the Opposition talk about, for example, which would broadly be public sector-type and make-work-type jobs—is not the way to create a sustainable economy. We need to expand the private sector, expand business and expand jobs, so that they are sustainable over the longer term, not just for a year or two.
Catherine McKinnell
I appreciate the theory that the hon. Gentleman is putting before the House, but is he aware that the Welfare Reform Act 2012 is projected to cost £25 billion more than was predicted in 2010? So his theory is just not working.
Charlie Elphicke
The hon. Lady knows that the economic recovery is being held up by the chilling effect of the eurozone and because the previous Government made an even bigger mess of the economy than was previously thought. So of course it has taken us longer to recover. None of us wants our economic difficulties to continue; we want the economy to improve, but this can be done, in part, by getting banks lending again and ensuring they have the capital needed to do that safely.
Charlie Elphicke
I have taken enough interventions. I have been generous in giving way and in dealing in detail with the hon. Gentleman’s points in particular.
The Opposition are saying, it seems, that we should take more money out of the banking system, but that would be irresponsible because it would constrain banks’ ability to lend. The Opposition use Barclays as an excuse to blame everything on greedy traders manipulating the LIBOR interest rate. I would urge caution, however, because I have looked through some of the internal documents floating around, particularly the note of a conversation involving Paul Tucker of the Bank of England. If I may, Madam Deputy Speaker, I shall briefly read it to the House by way of scene setting and to demonstrate the Opposition’s mischievousness in seeking to impose this tax.
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sure that the hon. Gentleman is about to make a fascinating point, but he will of course assure me that it is relevant to the new clause.
Charlie Elphicke
It is indeed, Madam Deputy Speaker, because a key part of the Opposition’s rationale for the new clause is that what happened at Barclays was so disgraceful that we need to punish the bankers. A large part of the shadow Minister’s argument is that these bankers are outrageous and we need to impose a tax. My point, however, is that we need to consider the wider picture. I am particularly concerned about the comments concerning what the previous Government did on regulation as well as tax. It says here:
“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
It seems it was not only greedy bankers manipulating the interest rates and putting pressure on the LIBOR interest recording; it seems more clearly to have gone to the heart of government and to have been sanctioned by Downing street, according to some comments on the internet. When we talk about how to tax the banks, we need to consider how to get more lending and ensure responsible banking with incentives for the long term. We also need to ensure that members of the previous Government accept their responsibility for the Barclays scandal, the LIBOR situation and their own behaviour.
Catherine McKinnell
The information that the hon. Gentleman is laying out is very interesting, but I would like to make it clear that the Labour party has been calling for an additional levy on banks’ payrolls this year for months, if not a year—I do not have the exact date. The scandal that has unfolded this week has highlighted the contribution that the banks made to the financial collapse and the collapse of the banks, which led to the economic recession that we have suffered. For that reason—
Madam Deputy Speaker
No, not okay. All interventions are supposed to be brief, and that includes Front-Bench interventions. I think we have got the gist of it now.
Charlie Elphicke
What I have set out also highlights the previous Government’s role in failing to regulate and, it seems, in indulging in a bit of market manipulation pressure of their own. I do not think that is acceptable. In her scene setting, the shadow Minister was basically saying, “What happened at Barclays is outrageous; therefore we need to do this.” What I am saying is that we should be careful what we wish for, because banks need enough capital to lend to small businesses, to create the jobs and money that we need to expand the economy and make this country a great success in the next 10 years, building Britain back up to the sort of success that we saw in the ’80s.
Ian Lavery (Wansbeck) (Lab)
New clause 13 is extremely important and deals with the bank bonus tax for youth jobs. It is an admirable new clause.
It is indisputable that the financial services industry is an essential part of our economy, but equally, there must be an acceptance that the industry—the banks and the financial institutions—needs to pay its way. The June 2010 Budget announced that a levy based on banks’ balance sheets would be introduced from 1 January 2011. Labour supports the bank levy, but we want to go further. We want to repeat the bankers’ bonus tax, which brought in an estimated £3.5 billion. We can argue about net and gross, as the hon. Member for Dover (Charlie Elphicke) explained; however, as far as we on this side of the House are concerned, the bankers’ bonus tax brought in £3.5 billion. Despite slight increases in the rate of the levy, the Government’s failure to repeat Labour’s bank bonus tax—and, in the meantime, create more than 100,000 jobs for young people—means that the banks simply received tax cuts last year and will do so in future years. It is wholly unacceptable, when we have a double-dip recession, for us to allow banks off with fortunes and tax cuts year on year.
In the last financial year, the amount raised by the bank levy was just over half the amount raised by Labour’s bank bonus tax—£1.8 billion, compared with £3.5 billion. The Chancellor’s spending review plans have simply failed. The Government’s austerity measures have led to the flatlining of growth in the economy, resulting in long-term youth unemployment spiralling to record levels. In the last year it has gone up by 112%, while the number of young people out of work for over a year has gone up even more, by around 156%. That is the result of the Government scrapping the future jobs fund, immediately after they came to power, without putting a viable alternative in place. They had no idea what would replace the fund or how on earth they would be able to create any employment, for young people in particular. The Work programme started only a year later, in June 2011, and we all know now, from people coming to our surgeries, about the difficulties that the workfare and other programmes have created.
That is why we are calling for Labour’s youth jobs guarantee, which would redress the Government’s scrapping of the future jobs fund. On a cautious estimate, we believe that the bank bonus tax could raise at least £2 billion this year, which the Government could use to build thousands of affordable homes and introduce the real jobs guarantee for young people who are long-term unemployed.
As part of Labour’s five-point plan for jobs and growth, the real jobs guarantee would cost £600 million, and would provide a six-month job for every 18 to 24-year-old who had been on jobseeker’s allowance for 12 months or more. We estimate that it could assist up to 110,000 people in that category. The Government would pay full wages directly to the business, which would cover 25 hours of work per week at the minimum wage. That would equate to about £4,000 per job. In return, the employer would be expected to cover the young person’s training and development for a minimum of 10 hours a week. The ultimate objective would be the opportunity of a permanent job at the end of the six months. New clause 13 would tackle the issue of youth unemployment, and make the banks pay their way.
Charlie Elphicke
Why then make it harder for banks to lend by taking more money out of them through the Opposition’s proposal?
Graeme Morrice
That may be the hon. Gentleman’s opinion, but I reiterate the point that, because of the Government’s policies of the past two years, the official figures show that banks lent £9.5 billion less to SMEs last year than in the previous year, so there is a problem now.
Mr Hoban
The last Prime Minister had a problem recognising his responsibility for the problems that befell the economy.
One way in which we have sought to get the balance right in the taxation of businesses is by introducing the bank levy. We took that decision in opposition. We thought that it was right to ensure that banks paid their fair share towards dealing with the risks that they pose to the economy. The measure was opposed by the previous Government. They did not want to introduce a bank levy on a unilateral basis. We had the courage to make that decision and to ensure that banks pay their fair share.
The bank levy is a tax on the balance sheets of banking groups and building societies. It complements the wider regulatory reforms that are aimed at improving financial stability, such as the higher capital and liquidity standards. It thereby ensures that the banking sector makes a fair and substantial contribution that reflects the risks that it poses to the financial system and the wider economy. The levy is also intended to encourage banks to move away from risky funding models.
From the outset, the Government have been clear that we intend the levy to raise at least £2.5 billion each year. The Opposition should get their facts right. They have trotted out the gross figure that was raised by the bank payroll tax. They must bear in mind that the tax also reduced pay-as-you-earn and national insurance receipts. That is why the actual yield of the bank payroll tax was only £2.3 billion. Our levy will therefore raise more, year after year, than was raised by their one-off bank payroll tax.
The target yield for the levy was set out in the Government’s first Budget. We also announced our intention to make significant cuts to the main rate of corporation tax. Let me deal with another red herring from the Opposition. We were clear at that time, as we are now, that the bank levy yield will far outweigh the benefits that banks will receive from the corporation tax changes. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but banks will not benefit because of the bank levy. In the 2011 and 2012 Budgets, the Chancellor has gone further and announced two more cuts in the main rate of corporation tax. It now stands at 24%. The increase in the bank levy announced in the Budget offsets the benefit of those additional cuts to maintain the incentives on banks to move towards less risky funding.
New clause 13, tabled by the shadow Chancellor, is, in the words of Yogi Berra, the great American baseball coach,
“déjà vu all over again”.
This is at least the fifth time in this Parliament and the second time in the passage of the Finance Bill that we have debated the bank payroll tax. We have heard no new arguments from the Opposition and nothing to persuade us to vote for it.
Yet again, we have to point out to the Labour party that such a tax would be counter-productive and unnecessary. The bank payroll tax was introduced as a one-off interim measure in the last Parliament ahead of regulatory reforms and changes to remuneration practice and corporate governance. The previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling)—somebody the hon. Member for Newcastle upon Tyne North should listen to and learn from—said that it could not be repeated. He pointed out that it was a temporary measure until bank remuneration practices were changed, and we have changed those practices.
The new clause calls for the proceeds of the tax to be used to help employment, but I should take some time to remind the House of the measures that we are already taking to do that. We have introduced the youth contract and are investing £1 billion over the next three years in supporting half a million young people into employment and educational opportunities. We will provide 160,000 wage incentives worth up to £2,275 each to employers who recruit an 18 to 24-year-old through the Work programme. There will be an extra quarter of a million voluntary work experience or sector work academy places over the next three years and a further 20,000 incentive payments to encourage employers to take on young apprentices, taking the total to 40,000.
We are also providing additional support through Jobcentre Plus and the opportunity for people to be referred for a careers interview with the national careers service. We are already providing more apprenticeship places than any previous Government, with a record 457,000 apprenticeships delivered in 2010-11 and a commitment to delivering 1.2 million over the entire spending review period. That is a quarter of a million more than the previous Government’s commitment.
The hon. Member for Newcastle upon Tyne North says that the bank payroll tax should be used to help youth employment, but let us consider the number of ways the Labour party has already announced it would be used. The Leader of the Opposition was asked where the money would come from to reverse the increase in VAT, and he said:
“I said for example we should have a higher bank levy.”
It was also suggested that it be used to pay for higher capital spending of about £7.5 billion in 2010, which would have required £6 billion from the bank levy. The Leader of the Opposition said that reversing child benefit changes could be afforded by using the bank payroll tax—yet another use for it.
The bank payroll tax is the tax that continues to give, the tax that the Opposition always turn to when they want to find a way of plugging the black hole in their figures. They used it to explain how they would reverse tax credit savings, spend more money on the regional growth fund, cut the deficit and turn empty shops into community centres. We have heard a remarkable number of ways in which something that the previous Government said was a one-off would be used to fill the black hole in Labour’s economic thinking.
Mr Hoban
My hon. Friend is right to ask me that question. About 15 times. Every time there is a tricky question, what is the answer? Let us reintroduce the one-off bank payroll tax. That demonstrates the emptiness at the heart of Labour’s economic policy. It has no concrete ideas to tackle what happened in the financial crisis or the economic problems that it left behind. The Opposition are reduced to trotting out the same stale arguments for the fifth time running, and I urge the House to reject them once again.
Catherine McKinnell
We have heard some passionate speeches from Labour Members, but I am concerned about the lack of contributions from Government Members. Only one, the hon. Member for Dover (Charlie Elphicke), contributed in the entire debate. He put forward some interesting views and theories, and I commend him for engaging in the debate, because there is little of more importance right now than youth unemployment.
The hon. Gentleman concluded his speech, however, by hailing a return to the 1980s. I do not know about other Opposition Members, but it sent a shudder of fear through me, because although some people had the time of their lives in the 1980s—we have fond images of the City, the champagne flowing, the pinstripe suits and the brick-sized mobile phones—for many the 1980s were not pleasant or a time of growth but devastating, particularly for youth unemployment. Parts of the UK, including my region of the north-east, other English regions, Scotland and Wales, suffered dreadful decimation of their traditional manufacturing industries, and in many ways are still paying the price. We risk repeating that fate today, which is why we are proposing to impose a bank payroll tax on the very institutions that played a large part in causing the international financial crisis that led first to the recession and then to today’s double-dip recession.
Catherine McKinnell
I give way to the only Conservative Member to contribute to today’s debate.
Finance Bill
Charlie Elphicke Excerpts(11 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Simon Hughes
No, I will not give way. The hon. Lady spoke for a very long time, as she often does, and I will not concede. This is a short debate—it goes on only until 7 o’clock—and I want to allow other colleagues to speak.
I want to make a specific plea on biodiesel. I should declare my interest: as some colleagues know, I sometimes drive a London taxi, which has often been powered by biodiesel bought from Uptown Oil, a firm in my constituency that collects used cooking oil from local firms—a chain of good environmental practice ends up in my cab and other vehicles in south London.
I have had discussions with the Economic Secretary and the Under-Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker), and I asked colleagues—my hon. Friends the Members for Bristol West (Stephen Williams) and for Redcar (Ian Swales)—to argue the case in Committee last week. We have so far not persuaded the Government to change policy, but I wanted to put the case as to why the industry needs continuing Government attention and to ask that they do not turn their back on the industry, even if they are not willing to concede to my requests now.
Charlie Elphicke (Dover) (Con)
I remember a case reported in the papers some while ago. A gentleman in Wales was arrested by customs officials for not paying duty on the cooking oil in his car. He was traced by the smell. Can the right hon. Gentleman confirm that cooking oil fuel no longer smells, and that customs officials should not arrest people found with it in their cars?
Simon Hughes
I confirm both.
Biofuel is produced from waste vegetable oil and collected locally. This has been going on for a century or more—the first diesel engine ran on peanut oil. Colleagues may not know this, but the idea was that biodiesel vehicles would be used by farmers, who could use their crops effectively. The Department for Environment, Food and Rural Affairs is clear that the huge numbers of blockages caused by pouring oil down drains are not a good thing—it is better to put it somewhere else, which costs money for companies and local authorities.
Biodiesel also means that such waste does not go into landfill sites, which produce 40% of our methane emissions and 3% of our country’s greenhouse gas emissions. The product therefore helps us to meet our renewable energy targets. We produced something like 35 million litres of biodiesel from used cooking oil sourced in the UK for road transport two years ago, which meant a carbon saving of 82 million kilograms of CO2.
There are about 30 to 40 producers—not just Uptown Oil in my constituency, but companies all over the UK. They are generally small firms, employing about five to 20 employees. They are confronted by a severely difficult economic situation. We could lose them, which would mean a loss of employment, a loss of revenue to the Government because they pay their taxes, and a loss of the source of the product, which would be a very bad thing.
In April 2012, following a decision by the previous Government, the differential fuel duty on biodiesel was taken away—it was put in place to support the industry—as the system of support across the EU changed to a new one. The derogation was originally meant to end in 2010, but it was extended by two years by the previous Government, because the implementation of the renewable energy directive was delayed—perfectly legally. There was therefore an attempt to ensure that the industry in the UK had continuing support on the basis that when such support ended—it was planned to end in spring 2012 —the new renewable transport fuel obligation certificate system would bring in the revenue.
Sadly, that was delayed—it was due to be implemented in December 2010, but in the end, it was implemented in December 2011. The new system has therefore had only a few months to bed in. The problem—bluntly—is that the price of the certificates is nothing like what the industry expected. Let me give a couple of quotes from people on the front line. This is from a firm in Feltham:
“I have found biodiesel road sales fall through the floor since the removal of the tax differential. 80% of my biodiesel sales now are for use as heating oil at a considerably reduced margin and overall volume of sales. I have had to lay-off my production manager and am working 7 days a week just to try to keep the business going.”
Edible Oil Direct Ltd of Rye, East Sussex says:
“We had to keep our prices at the pre budget price. Our On-Road customers who most makeup ‘saves money’ as opposed to the ‘green impact’ stated that if the price was increased in line with mineral they will switch back to mineral.”
Convert2Green of Middlewich, Cheshire says:
“"On average Convert2Green…received last year 20p tax differential and 17p Renewable Transport Fuel Certificate…revenue per certificate i.e. 37 pence per litre. With this, the company made an operating profit of £290k. Currently, the best offer we have for RTFCs up to April 2012 is 7 pence per litre and from April 2012 onwards 10 pence per certificate. At two certificates per litre”—
the new system—
“we estimate we will get 9 pence per certificate or 18 pence per litre on average. This is a reduction of 19 pence per litre. We sell approximately 3.75 million litres of road fuel per annum. Our profit reduction is £712,500 per annum or £59k per month. This takes us into significant loss. We will have to consider our future.”
Finally, the firm from which I bought my biodiesel, Uptown Oil, just over the bridge in Southwark, says:
“So far it has had a disastrous effect on our sales of Biodiesel for road use....Down 75%. Before the change we were receiving…around 17 pence…and 20p from the government. Now we receive 7p x 2 RTFC so 14 pence. So having increased our price we are worse off by 13 pence a litre. If we were to increase our price by 13 pence our fuel would be marginally more expensive than fossil fuel and sales would virtually cease.”
Those figures speak for themselves.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
It is a pleasure to speak on this important issue. Notwithstanding the fact that few Opposition Members are present, I hope that Government Members will recognise the quality of the contributions, if not their weight in numbers. Neither should anyone believe that the fact that there are relatively few Labour Members in the Chamber suggests a lack of interest or concern about this issue, which matters to every one of our constituents.
Two weeks ago, on 20 June, an article in The Daily Telegraph reported the Prime Minister as warning motorists that there was
“no bottomless pit of money”
to fund a fuel duty cut. We were led to believe that this was dampening speculation that the Treasury would be able to afford the £1.5 billion needed to cancel the extra duty for one year. On 24 June, the Transport Secretary, also in an interview in The Daily Telegraph interestingly, indicated that she was not prepared to lobby the Treasury to delay or abandon the 3p increase in fuel duty due this August. She was also reported as saying that her focus was instead on “challenging” petrol firms to cut the cost of fuel at the pumps to reflect the falling cost of oil globally.
We have no problem with that. Many people are concerned that prices at the pump do not change as the oil price drops, although we know that it is difficult for small independent petrol retailers who have to buy at a particular price and might not have the same volume going through as some of the large supermarkets. We have to understand that. However, the Transport Secretary’s comments chimed perfectly with the words of the Economic Secretary in a recent Westminster Hall debate:
“Calls for the August increase to be scrapped raise an important question, because we would need to consider how to replace the £1.5 billion it would cost. That money would need to come from higher taxes or lower spending elsewhere.”—[Official Report, 23 May 2012; Vol. 545, c. 143WH.]
Every time the issue was raised, then, Ministers made it absolutely clear that if they were to do it, they would have to come up with a way of paying for it—stating the obvious, perhaps, but I shall return to that point later, if I have the opportunity.
It might be a cliché to talk about a week being a long time in politics, but a week after the 20 June article, the shadow Chancellor, in an article for The Sun—that newspaper, like FairFuelUK, had campaigned on the issue—called for the August duty increase to be dropped, and made it clear that he wanted it to be dropped at least until next January. Government Members seemed to suggest that this was opportunistic and done on the spur of the moment or for purely political reasons. Nothing could be further from the truth. We have consistently made it clear that action needs to be taken, especially given that times are tough, with higher VAT generally and prices rising faster than wages.
Everyone knows from their constituents—I am sure that Government Members receive the same representations as Labour Members—that filling up the car is now a big drag on family budgets. Indeed, a nurse in my constituency who was not on a high salary told me that filling up her car to get to work cost her so much that it was like having another mortgage.
Charlie Elphicke
The hon. Lady is making heavy weather over who should take the credit and whose idea it was. Is it not great news, first, that prices at the pump are falling, and have been falling in recent weeks, and secondly that the Chancellor has been able to freeze fuel duty?
Cathy Jamieson
I welcome the fact that it will make a difference for constituents, but once again, unfortunately, the way it was done did not suggest a Government who were organised or knew that they were going to make the announcement at that particular time. That is important in the context of how it will be paid for, but I shall come to that.
At the time, we expressed concern that the Chancellor’s Budget plan would mean a 3p hike in fuel duty in just five weeks. Previously, we had called for the Government to cut VAT, which would have knocked 3p a litre off fuel prices, as well as helping hard-pressed household budgets in other ways. We called for the August rise to be dropped because we believed that increasing the fuel duty at this time would have sent the wrong signal to retailers, who would have had to pass every penny on to drivers and put prices up just when they should have been cutting them.
We also made the point that with Britain now in a double-dip recession, the last thing our economy needed was another tax rise adding to the squeeze on household budgets and to the difficulties faced by many small businesses. The Government’s priority should have been to boost the economy, rather than to clobber families, businesses and pensioners just when they were feeling the squeeze the most. That is why we called on the Chancellor to stop the August fuel duty rise, at least until next January. We said that we would put that issue to a vote in Parliament, and that is why we tabled new clause 11.
Cathy Jamieson
I hear what the hon. Gentleman says, but many people will be about £511 a year worse off. Many, particularly those on the lowest incomes, will not benefit from the rise in the income tax threshold, and a large proportion will be part-time workers who cannot work for the extra hours that they have been told will enable them to continue to qualify for tax credits.
Charlie Elphicke
Does the hon. Lady not welcome the fact that 2 million will be taken out of tax altogether, and that most basic rate taxpayers will be better off to the tune of, I believe, £220?
Cathy Jamieson
The problem is that the Government are giving with one hand and taking away with another. According to the Institute for Fiscal Studies, many people will be £511 a year worse off. That may not seem a lot of money to one of the millionaires who will benefit from that £40,000, but it will make a big difference to a low-paid worker who is struggling to make ends meet and is feeling the pinch because of rising prices for food and other commodities.
Cathy Jamieson
I am a relative newcomer to this place, and I sometimes find its procedures and conventions bemusing. I have learned from my time in the parliamentary process, however, to take advice from the Clerks and others who know about drafting legislation, and that is what we did in respect of these amendments.
The Minister will no doubt protest that the higher rate was not raising any money, but the Government’s attempts at justification have not withstood the scrutiny that has been undertaken. The Office for Budget Responsibility, for example, says that Her Majesty’s Revenue and Customs’ estimates of the reduced tax avoidance that would result from the reduced rate are “highly uncertain”. They are based only on the first year’s yield from the new top rate, which was always expected to be artificially depressed by people’s ability to bring forward their income. No real basis is therefore offered for estimating the revenue-raising potential of the 50p rate. It is for that reason that the Institute for Fiscal Studies said that it is
“too soon to form a robust judgement.”
The claims that new funds would flood into the Treasury as a result of people relaxing or reversing their efforts to avoid paying the top rate have been shown to be notoriously speculative. Again, as the IFS explained,
“you’re first giving out £3bn to well off people who are paying 50p tax...you’re banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them less...there is a lot of uncertainty, a lot of risk with this estimate.”
A written answer provided by the Exchequer Secretary to my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chief Secretary, on 19 June shows that in 2010-11 more than 73% of people earning over £250,000 were paying more than the top rate, as were more than 80% of people earning between £500,000 and £10 million, implying that many tens of thousands of people were paying the 50p tax rate of last year and are now in line for a very large tax cut if this measure comes into effect.
Cathy Jamieson
I will give way to the hon. Gentleman, if he would like to answer that point.
Charlie Elphicke
I read the impact statement and the detailed IFS discussion of the so-called ‘uncertainty’. Its premise was that the avoidance would end because people would pay themselves out, regardless of how they had parked and deferred the revenue, and would therefore pay the tax at 50p. The problem is that people who have a personal service company—as so many Labour MPs and Labour supporters, including Ken Livingstone, seem to have—can defer for a very long time. They can pay themselves a beneficial loan and almost avoid tax altogether. That has also been a scandal in recent days. It is therefore not true to say people cannot continue deferring.
Cathy Jamieson
I will answer that point in more detail later. I am a little disappointed, however, as I thought the hon. Gentleman was going to make a different point. He seems to be suggesting that only people with a connection to Labour had been avoiding or evading tax, which is, of course, absolutely not the case. I hope Members across the House will ensure that at every stage those who are due to pay their taxes should pay them and should do so willingly and properly.
Cathy Jamieson
My hon. Friend makes a very valid point. That must be purely coincidental, because surely no Government would want to take that amount of money from pensioners simply to give it to the richest. Perhaps this Government would though; perhaps we have the same old Tories with the same old policies, yet again. The pensioners who have been hit hardest by this Government’s decisions are seeing them coming back for more. That £3 billion raised over the next five years is the biggest revenue raiser in the whole Budget, and it is coming from the pockets of pensioners with modest incomes. And it is all going towards what? Is it going to paying down the deficit? No. Is it going to help young people get back to work? No. Is it going to help the poorer pensioners? No. Instead, this money is being taken from millions of older people living on modest pensions and redistributed to a few thousand individuals with incomes of more than £150,000 a year. What an absolute disgrace: taking from the pensioners to give to those already on those high earnings.
The Government were said to be surprised by the anger this tax change has aroused. If that is the case—if they were surprised—that shows just how out of touch they are with the values, principles and priorities of the British people. At the time, the response of Age UK was very clear. It said that it was disappointing that the Budget
“offered a tax break of at least £10,000 to the very wealthy while penalising many pensioners on fairly modest incomes, who are already being squeezed”.
We could not have put it better ourselves. The chief executive of Saga said:
“Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.”
The National Pensioners Convention said:
“We have been inundated by pensioners who are disgusted that those on around £11,000 a year will no longer get additional reductions in their tax—whilst those earning £150,000 or more will see their tax bills reduced.
This is seen by many as the last straw...Pensioners feel they are being asked to bail out the super rich—and it’s simply not fair.”
Pensioners are absolutely right to feel that way.
These amendments are a chance for the Government to rectify one of the most blatant injustices in this Budget. It simply cannot be right to ask millions of pensioners on modest incomes to pay more while finding a way for a few thousand millionaires to pay less. It is extremely hard to comprehend how the Government could ever have thought that this was fair, or that it would be acceptable to pensioners and to others who care about pensioners, but now they have an opportunity to put it right, and Members from all parts of the House have a chance to show where they stand. They can support these amendments and do the right thing by the people who did the right thing for themselves.
Charlie Elphicke
It is a pleasure to follow the shadow Minister, who has set out such a partial view from the Labour party’s perspective on this Budget. I think there is a better approach: the more people we take out of tax, the better, as the administration cost is less and there is less hassle for people, particularly the least well-off. I want to see the personal allowance increased to £10,000 as soon as possible. Good progress was made in the last Budget, but the sooner we take the number to £10,000, by far and away the better. Nevertheless, I welcome the fact that most basic rate taxpayers will see an annual cash gain of £220, and I welcome the fact that this Budget takes 2 million people out of tax altogether. That is important, particularly given that we all remember the fiasco over the 10p tax rate. The more we can look after the least well-off and take them out of the tax system, by far and away the better.
I was fascinated by the whole discussion about the 50p rate. We can see from Treasury figures that we are talking about £100 million. That figure is rubbished by the Labour party, which thinks the figure is completely wrong and cites an IFS report. Let me quote the relevant passage from the IFS report, which is where I think the Labour party draws its approach from. The IFS states:
“The worry for the Chancellor is that the estimate that cutting the top rate to 45% will only cost £100 million is particularly uncertain. It assumes a ‘no behaviour change’ cost of £3 billion offset by a behavioural change of £2.9 billion. The first number we know reasonably accurately; the second number is estimated with great uncertainty. Even if we knew the effect of introducing the 50p rate—which we don’t with any precision—responses may not be symmetric. Those who have got a taste for avoiding the 50p rate may continue to avoid the 45p rate (even if they wouldn’t have done so had the 50p rate never existed). The experiment with the 50p rate does not appear to have gone well.”
My first conclusion is that the IFS is saying that making the rate 50p in the first place was a complete and utter disaster. The second issue raised is the uncertainty over behavioural change. On that, I say that we have empirical evidence on what happens when the rate is reduced. I do not know whether everyone recalls this, but we used to have an income tax rate of about 80%. When that was reduced, first to 60%, there were great cries from the Labour party that it would cause a collapse in the revenues, but instead the revenues rose. Why was that? It was because fewer people avoided tax. The Government of the day then reduced the rate to 40p. Again there were great cries from the Labour party that that would let the rich off the hook, but what happened? The revenues rose. Why was that? It was because fewer people were as interested in avoiding tax and they paid up a fair share.
Sheila Gilmore
There are other explanations for the increased tax take during the period in question. One was the general growth in the economy, which generated more income, whereas another was the greater degree of inequalities, which meant that although people were paying a lower rate of tax, the cash take was higher because their income had risen so much. People on very high incomes are still paying a relatively low rate of tax, however. If tax avoidance did not take place previously, why have there been so many examples of it?
Charlie Elphicke
I absolutely agree. The 1980s were a time of great economic expansion; a great time of liberalising markets, sound money and sound economic policies that saw that massive expansion. It was also good that the ’80s saw a massive reduction in the rate of taxation, which spurred on growth.
What happened in the last decade was all built on debt. It was all a bubble and it ended in a massive shambles and a massive bust that has brought our country to its knees. We need growth. How will we get it? By reducing the rate. If we cut the rate, we will increase the take and encourage people to invest in UK plc. That is where we need to go.
Hywel Williams (Arfon) (PC)
Proponents of the Laffer curve, which is what the hon. Gentleman is talking about, often say that paying a higher rate of taxation is a matter of personal choice. Does he agree?
Charlie Elphicke
As I said, I think the Laffer curve is an interesting principle, but I prefer empirical curves and empirical results from experiments. We know from the ’80s that if the rate is cut, it increases the take. For me, the uncertainty is not about whether reducing the rate from 50p to 45p will cost the Exchequer £100 million, but about whether it will add £100 million or £200 million to the Exchequer as fewer people seek to avoid tax.
Jacob Rees-Mogg (North East Somerset) (Con)
Does my hon. Friend think that cutting the rate to 40p or even 35p might have raised even more money? Would not that be a very good thing for the Government to do?
Charlie Elphicke
My hon. Friend tempts me, as ever. He knows that my view is that one should reduce the rate and clamp down heavily on tax avoidance. I respect the fact that he does not always share my views on tackling tax avoidance—I recall that in Committee he said that I was going to paint the cliffs of Dover red, so passionate was I that people should pay their fair share—but I do think that if we have lower, simpler taxes and a simple tax system, it will incentivise investment and encourage more economic growth. The argument for reducing the higher rate of tax, which was only a temporary increase in the first place—the Labour party seems to have forgotten that—was to get more investment in our economy and to encourage the entrepreneurs and wealth creators.
Jonathan Edwards
Does the hon. Gentleman agree that the major problem we have at the moment is that it is socially acceptable to avoid paying tax and that our job as politicians is to create a social climate where it is unacceptable not to pay what you are due?
Charlie Elphicke
I agree. There has been a climate in which it is somehow acceptable to avoid taxation and I made many speeches in Committee about how that culture is unacceptable and needs to change.
It is up to us to send a clear message, as Members of all parties, that tax avoidance is wrong. That was why I intervened on the shadow Minister earlier to say that the message sent by politicians who use personal service companies is deeply corrosive. They should all pay a fair share of taxation and should not try to avoid it in that way, because it sends the wrong message. In all fairness, I say that to members of my own party as much as to Labour members. It is not acceptable in the current age.
Ian Lavery
The hon. Gentleman and I had some good discussions in Committee—I would not call them enjoyable, but they were good. Does he think it is fair to hit the grannies—to hit elderly people—with a £3 billion loss and at the same time to cut taxes for the richest people in the UK?
Charlie Elphicke
I think it is fair to say that we are not cutting taxes yet, because the change would not come through to the next financial year. Hon. Members will correct me if I am wrong, but I believe that that is the case. We must consider the Exchequer numbers, which show that the cost of the cut is very low. I think those numbers are wrong, as they have not taken into account the dynamic effects of the change, which will probably be tax accretive to the Exchequer when all is taken into account.
As for the issue of age-related allowances, the Government’s triple-lock guarantee will mean that the overwhelming majority of older people—in fact, all of them, I think—will be better off and there are no cash losers. Secondly, we are talking about the very richest of the oldest. We are not talking about the oppressed pensioner with no savings but about the richest of the oldest and, as I say, there will be no cash losers. Although it is uncomfortable for many people and has been uncomfortable for all of us, the Government have been doing the right thing by the elderly and have been looking after the least well-off elderly first of all. It is really important to protect them from the difficult economic times we have had.
Sheila Gilmore
I ask the hon. Gentleman to correct the impression he gave. The age-related tax allowance does not go to the very richest pensioners; it is the group in the middle who are being squeezed by the proposal.
Charlie Elphicke
The age-related tax allowances only kick in to benefit those pensioners who have a substantial income, or a more substantial income, in retirement. We are not talking about the very least well-off pensioners who are affected by grinding poverty, but about pensioners who are better off and who have savings and income. As I said, there are no cash losers and they have had a massive benefit from the pensions triple lock.
Ian Lavery
When the hon. Gentleman says that there are no cash losers, does that mean that pensioners will not lose out?
Charlie Elphicke
That is my understanding, yes. Pensioners will not lose out, there will be no cash losers and no pensioners will be worse off in cash terms, As the hon. Gentleman well knows, we can have the argument about future rates of inflation and future rates of RPI, but one must also take into account the other side of the equation, as pensions and benefits for elderly people will rise in the same way and at the same time. Overall, we are not talking about a great difference; we are certainly looking after the least well-off of the elderly, and we have done so very well indeed. That is an important achievement of this Government. Pensioners have been better off under the Government and have been shielded from the austerity measures.
Let us look across the piece at what the Government have done. We have done the right thing to reduce taxation at the top level, which was meant to be temporary, to encourage investment in our economy and to encourage entrepreneurs. The Government need to take further action to deal with people who abuse personal service companies and other tax wheezes and to ensure that we have stronger measures against avoidance by individuals. We have seen enough of it in the newspapers, so I shall not go into individual cases because, as we know, that ends up in a spat about whether one likes Take That or late-night comedy shows. Nevertheless, it is right that we should ensure that individuals cannot play the system and that the law should be changed. It is all very well for the Labour party to take the moral high ground on the issue of tax allowances, but Labour was asleep at the wheel for about a decade and failed to deal with tax avoidance in the individual and corporate spheres. That was completely wrong.
Kevin Brennan (Cardiff West) (Lab)
I would be more prepared to take that from the hon. Gentleman if I had not sat through Finance Bills when we were in government only to see that, time after time, his party tried to stop us closing loopholes that would stop tax avoidance.
Charlie Elphicke
I was not there at those times, I did not sit through those Bills and I cannot comment. I am only a newish Member, elected in the 2010 general election, and I have personally been pretty consistent in making the case that we should not have tax avoidance and should be far more vigorous in tackling tax avoidance by individuals and by corporates. Corporate tax avoidance is particularly important, but it is not on the subject of this debate, so I shall move on quickly before you call me to order, Mr Deputy Speaker.
There is an issue and we need to tackle it. Overall, I want the allowances for the least well-off to be higher so that we take more of them out of tax. I think the Government have taken the right Budget decision on the higher rate numbers and have taken a difficult but principled decision on age-related allowances. The Government have struck the right Budget balance.
Barry Gardiner (Brent North) (Lab)
“No cash losers”: I must say that I think that those are the most disingenuous words that I have heard in this Chamber for a great many years. I remember that in the Budget the Chancellor was not particularly keen to draw the House’s attention to this change.
In the Budget, the Chancellor glossed over the whole issue of the granny tax very quickly indeed, yet only a year before, he came to the Dispatch Box on Budget day and said that he would not hide anything—he would tell it like it was. He would tell the bad with the good. That was just a year before, but in this year’s Budget, he glossed over the granny tax altogether.
“No net losers”—how accurate is that if we look at the total picture for pensioners? For existing pensioners, the age-related allowance will be frozen. It is interesting that the year before, it was not the Chancellor, but the Prime Minister, no less, who promised that the allowance would increase in line with the retail prices index. “No net losers”—those who believed the Prime Minister’s promise to pensioners might be excused for feeling that they were losers under the change. That is what happens. People listen to what the Prime Minister says, and make their financial plans on the basis of it: “The Prime Minister promised me, so of course I can expect to have that.” Well, it did not happen, and I think that is disingenuous.
We heard in this Chamber that there are no net losers, but what about people who are about to become pensioners? Are they net losers? They certainly expected an age-related allowance, but they find that, for them, it is not frozen, but cut. We can stand here and call black white, but it is incumbent on us not to take the public for fools, and I am afraid that the speech from the hon. Member for Dover (Charlie Elphicke) did that. I regret that, because he is not a disingenuous character—he is quite a lovable character in this House—but to say what he did is to treat people with contempt. It is treating them as though they do not understand their own affairs, when it is their own affairs—their own pennies, in many cases—that we are talking about. That hits hard.
Barry Gardiner
I do not want to see dissent break out on the Government Benches. No fighting amongst yourselves, please, gentlemen. These are serious matters. They cannot be treated as an experiment because people suffer.
Charlie Elphicke
I thank the hon. Gentleman for giving way. He is a courteous and jolly fellow. Let me help him by digging him out of the hole that he is rapidly getting himself into in his exchanges with my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). The point that we are making is simple: reducing the top rate will not change the income and revenue numbers significantly, but it sends a message to wealth creators that their investment is encouraged and will help to grow the economy.
Barry Gardiner
The hon. Gentleman has already said once in the debate that he does not believe the Treasury’s figures. He has now reinforced that. The Treasury has made the calculations. He can choose to say, on a personal level, “I think the Red Book is a load of tosh,” but he cannot say that that is the Government’s position. The Government’s position is that the measure will cost £3 billion a year. [Hon. Members: “No, it is not.”] The Government cannot get out of this one. They say that it will cost money. That money will be taken away from some of the poorest people in our society to pay for it.
That is what people find so distasteful about the way the Government are behaving. They are taking away from some of the poorest in our society, yet feel that it is so important to send that signal out to some of the wealthiest. The people who are being excoriated in the public conversations around the country for what they have done and what they continue to do to our economy—those are the people who will benefit, and it is the poor in our constituencies who will suffer.
Barry Gardiner
My hon. Friend, yet again, makes an excellent point. There is an implicit acceptance that people will try to avoid tax, and that therefore it is better to reduce the level of taxation so that there is not the same level of avoidance.
Most of my constituents listening to this debate and to the debate that has been going on since the Budget think the Government do not understand what people are going through, what they are feeling and just how difficult it is for some of them to make ends meet. They do not understand that precisely because of the sort of signals the hon. Member for Dover just mentioned. The Government consider it more important to make those signals to the wealthy. They think it is more important to focus on what they understand about their involvement in society, and they do not give the same attention to getting those messages to the poor in society.
What the Government have done in the Budget is to say, “If you are poor, we know that the best thing for you is to cut your benefits to make sure that you work harder, and if you are rich, we know that the best thing for you is to cut your tax so that you work harder.” People look at that and say, “This doesn’t make sense. It’s one law for the rich and another law for the poor.”
Charlie Elphicke
Yes, we do understand, and I in particular understand because my constituency is one of the most deprived in the south-east. The economic numbers are much more like those of a constituency much further to the north of England than the hon. Gentleman’s constituency. We do understand, and we also understand that wages have stagnated since about 2004, on the hon. Gentleman’s Government’s watch. This is not a new problem. We understand that, which is why we need to reduce the top rate of tax to encourage the job creators to create the jobs and the money that will give my constituents more prosperity.
Barry Gardiner
The hon. Gentleman talks about the way in which wages have broadly stagnated. We are now seeing wages going down and jobs being lost, and we are back in recession. He should look at the promises of his Government in that first Budget. The promises, commitments and assertions were that the measures in it would pull us out of the problems that we were in and get the economy back on track. They would deliver growth and prosperity, but they have not. He will remember, because he is an honest fellow, to use his word, that at the time, on the Opposition Benches, people were saying, “No, this will lead to a double-dip recession.” All those on the Government Benches told us in unison that we were wrong and that the Budget would pull us through the problems.
The electorate look at that, see the analysis, see what steps were taken and ask, “Who was right?” They know, because we are back in double-dip recession, that the Government got it wrong. We are at a point where there is £150 billion extra borrowing, the largest single increase year on year in the UK’s history.
Oral Answers to Questions
Charlie Elphicke Excerpts(11 years, 11 months ago)
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Miss Smith
Let me name a number of things the Government are doing to support families and let me note our plans to move toward universal credit, which will help with work incentives. Let me note our plans to have doubled the number of disadvantaged two-year-olds receiving free hours of child care each week. On tax credits, let me note that we have had to fix the previous Government’s unsustainable budgeting in that area and that six out of 10 families with children are still eligible.
Charlie Elphicke (Dover) (Con)
Is it not especially important that we take action on child poverty, given the quite sharp increase in the previous Parliament? The targets were missed by about 600,000, I think, and when the previous Government left office, 4 million children were in poverty.
Miss Smith
My hon. Friend is correct: child poverty is a real problem. This Government are committed to eradicating it and to increasing social mobility. We are taking the measures to assist children that I listed in response to the previous question. I should also point out that the average household gains about £5.50 a week from the tax and benefit changes made in April this year. We are making progress and acting where we can. It is important to keep up the pressure on child poverty.
IMF
Charlie Elphicke Excerpts(12 years, 1 month ago)
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Mr Osborne
No we have not failed to get our money back from the IMF. Britain was one of the creators of the IMF, because we understood after the 1930s that if countries just walk away from problems in the world economy, the problem is very much worse. In the north-east, we have manufacturers such as Nissan in Sunderland. Nissan is making a big new investment in the UK. It is doing so, in the end, because it has faith that the world economy will be a more stable place, one of the reasons being that we have strong institutions such as the IMF.
Charlie Elphicke (Dover) (Con)
Had other IMF quota members followed the advice of the shadow Chancellor and effectively walked on by, leaving European countries to fend for themselves, what would have been the effect on the UK economy in terms of jobs and money, and what would have been the effect on the economies of developing countries?
Mr Osborne
If the world were unable to provide the IMF with the resources it needed, people would see that the world was not able to act as a whole to deal with world problems. By the way, I happen to believe that there is no prospect that the shadow Chancellor would have taken a different decision from the one I have taken if he were doing my job. He takes the position he does simply because he is sitting on the Opposition Benches.
Finance (No. 4) Bill
Charlie Elphicke Excerpts(12 years, 1 month ago)
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Alison McGovern
I shall return to my constituents and tell them that a moment of cross-party agreement broke out over the problem that the hon. Gentleman and I agree exists, where we must rightly consider the state pension age, but that that decision will affect certain people in a completely different way from that suggested by any average figure. I hope that the hon. Gentleman will allow me to respond to his second point by saying that I will remark later on whom the proposals affect and their relative position.
Before making my substantive point about how the economy clusters and how these proposals will affect us, I want to answer the point about inflation made by the hon. Member for Stourbridge (Margot James), who has unfortunately just left the Chamber. She sought to make a case against my hon. Friend the Member for Leeds West (Rachel Reeves), saying that the Government were doing pensioners a great service by increasing their pension on inflation, which has come about because of events beyond our shores, and the Government are just trying to respond to the oil price, and so on. I have no doubt that world events have had an impact on inflation in this country. Thankfully, I do not have to work out which events have an impact on inflation and report that to the Chancellor. That is the job of the Governor of the Bank of England. I have read the Governor’s letters on inflation and he remarks on the impact of the Government’s VAT rise on inflation. If the hon. Lady were here, I would tell her that it is not entirely true to say that the inflation that we face that has caused the Government to be so proud of their cost of living rise for pensioners is entirely beyond our control. It is in part at least down to the Government’s action.
I want now to think about the cumulative impact of this policy and a couple of others on the part of the world that I represent, but also on similar local economies. Some of the Government’s decisions have resulted in a kind of conflagration that means that particular localities face a really difficult economic future.
Charlie Elphicke (Dover) (Con)
The hon. Lady makes much of the fact that age and longevity vary quite a lot throughout the country. She has also made a connection between shorter life span and deprivation. How many of her constituents with a short or shorter than average life span will be affected adversely by the age-related allowance, because it is over £10,000?
Alison McGovern
The hon. Gentleman seems to be saying that if you are poor enough to have a short life span, you are not rich enough to be affected by the change, which is an interesting hypothesis. It is a testable proposition, but it seems entirely wide of the mark.
Alison McGovern
I am so pleased that the hon. Gentleman chose to mention the north-south divide, because it gives me the opportunity to discuss a concept that trips off the tongue so easily but is actually extremely unhelpful in tackling the kind of local economic development that I am asking Treasury Ministers to consider when making decisions. He will know as well as I do that although the north-west, which we both represent, has significant deprivation, it also has some pretty wealthy areas—the Chancellor himself has the honour of representing one such area. The north-south divide, as a concept, masks a whole lot of other inequalities. Again, I mention the inequalities in London. It cannot be said that there is a simple, straightforward north-south divide in this country affecting every locality in the same way; we should have a much more fine-grained analysis. There are places in the north that are extremely successful and places in the south that really need help.
Before I try the patience of the Chair any further, I will return to the importance of age-related allowances.
Alison McGovern
I will give way, and I feel sure that the hon. Gentleman will say what he thinks the Government ought to do to ensure that the cumulative impact of their policies, and their policy on age-related allowances specifically, does not hold back local economic development in parts of Wirral.
Charlie Elphicke
I thank the hon. Lady for giving way again; she is being extraordinarily generous in taking interventions. She is making a characteristically extraordinarily thoughtful speech. It is a matter of great concern that over the past decade and a half, the gap between the least well-off and the richest has grown. There is now more inequality. Will it not help to reduce the inequality between pensioners to increase the basic state pension by the biggest amount ever—£5.30, which is a big jump—and to ensure that the richest pensioners do not get such a high benefit, but do not lose out either, by capping the allowance?
Alison McGovern
That was a long intervention. The hon. Gentleman said that inequality grew under the previous Government. I point him to analysis done, if I recall correctly, by the Institute for Fiscal Studies at the time of the 2010 general election, which showed that the incomes of the lowest on the income scale increased significantly under the previous Government. We can have a discussion about how one deals with the inequality that is created when the incomes of people who earn a great deal of money rise, but I fear that it would not be within the scope of this debate. I am sure that we will discuss that on another occasion.
I will conclude my remarks by talking about the squeezed middle, because it is people on what one would think of as middle incomes who are affected by age-related allowances. In its frequently asked questions section on this policy, the BBC states that
“it is a ‘middle-income’ range of 40% of pensioners who will not get what they might have expected from the tax system.”
Katy Clark
The word “dignity” has been used a number of times in this debate. It is an important word, particularly given the proposed change, which has been put forward at short notice. We have had debates about pensioner income over many years in this place. We have heard a number of proposals, from parties in all parts of the House, that would change the financial position of those reaching retirement. However, a common theme has been the importance of giving as much notice as possible of any change, particularly when dealing with people’s incomes in retirement, so that people can make the changes necessary to cope with the changing world.
One of the problems with the proposed change, which will come into effect in 2013-14, is that it represents not a minor or technical change, as many Government Members have said, but quite a substantial drop in income at short notice for people on modest or medium incomes. My hon. Friend the Member for Livingston (Graeme Morrice) highlighted the impact on those who turn 65 in 2013-14, who could lose £323 a year, which represents a significant amount, not a technical change. Therefore, to answer my hon. Friend the Member for Inverclyde (Mr McKenzie), people in those income brackets will be very disappointed by the change. That is one reason I have highlighted the fact that the measure was not in the manifesto. If the Government think that it is an important part of their long-term pension reform, it should have been in the manifesto. It should have been consulted on and thought through, and a great deal more notice should have been given to the individuals affected.
Charlie Elphicke
A key concern of mine is to understand why there should be a higher personal allowance for senior citizens than for hard-pressed families who are struggling to get by. Why does the hon. Lady think that that is justified?
Katy Clark
I mentioned this in an intervention. At the time of the allowance’s introduction, a number of reasons were given, one of which was pensioners’ higher heating costs. A full explanation was given during those debates of the higher and additional costs that are associated with retirement. Those higher costs of living have a disproportionate impact on pensioners. In the debates on pensions that we have had over the past few months, a great deal has been said about the higher costs that pensioners face, and about the possibility of having a different form of indexation for pensions, given that pensioners tend to have different living costs from the rest of the population.
Nigel Mills
Obviously I did not say that, because I would have been wrong if I had, but I did say that no section of the population would be spared the pain caused by our sorting out the mess that we would have to deal with. I would also have said that I considered the 50p or, more accurately, 52p tax rate an invidious measure which had been devised as a political trap, that it was a terrible tax policy, and that it would probably raise very little money.
The two independent studies that support the Budget have shown that the cost of lowering the rate to 45p is about £100 million a year. The saving from the so-called granny tax is approximately 10 times the size of that. If anything in the Budget is being funded by the granny tax, it is the reduction in personal allowances for the low earners in society.
Charlie Elphicke
Does my hon. Friend recall the former Labour Prime Minister Tony Blair saying back in 1997, “Elect us and we will destroy the private pensions system on which you rely for your retirement with a £150 billion impost”? I do not recall anything of that nature appearing in the Labour party’s manifesto.
Nigel Mills
I think my hon. Friend is suggesting that we should view the issue in the round—the issue, that is, of how we can encourage people to fund their own retirement and achieve the decent level of income that they want in a way that is not unaffordable for the taxpayer.
Nigel Mills
I accept that that is an issue in respect of the granny tax proposal, but I suspect that the £5 billion tax raid which has been referred to and a whole series of other measures that have discouraged saving will have far more serious impacts. I am sure the hon. Lady would join me in welcoming the Government’s proposal to introduce the flat-rate individual state pension of, I think, £140 per individual, as that will help address the problem she mentioned.
Charlie Elphicke
Does my hon. Friend agree that the previous intervention was a real cheek? The party of the hon. Member for Stretford and Urmston (Kate Green) destroyed our pension system and raided our pension funds, and it also destroyed thrift by introducing means testing into the pensions system, thereby totally disincentivising any form or saving and personal responsibility whatever.
Sheila Gilmore
I think it is important to see this in the context of the cut in the 50p rate.
I am also concerned about some of the attempts today to counterpose and, as usual, level down. It is fascinating. We heard earlier that if we were going to increase the allowances for young people and working people, it was not fair that older people who were already retired should have a higher threshold. Why do the Government always want to level down? Why do they feel, essentially, that they have to pit one group against another rather than saying that the unfairness lies in the high tax levels for working families? Let us not forget that many of those families have not benefited from the rise in the tax threshold because of the changes to tax credits.
Some of the apparently quite small measures that the Government are introducing are illogical. We keep being told that we want people to save and to benefit from savings and work, but yet again this measure undermines that. We have seen that, too, in the way in which working tax credit has been dealt with. We have heard about people with very low working hours who will lose a lot of working tax credit. Working tax credit was frozen, however, and was not increased in line with inflation when benefits were. That totally contradicts the Government’s own policies, because if we want to make work pay rather than benefits, why put up benefits in line with inflation but not working tax credit?
At lot of what is happening is illogical and it is important that we straighten things out and oppose this provision. I shall sit down now so that my hon. Friends can speak.
Charlie Elphicke
One key point is missing from this debate, and that is a memory on the part of the Labour party. We have heard a lot of cant from the Opposition and they have shown very little memory of the pensions raid back in 1997, which knocks the issue of age-related allowances into a cocked hat. It should be remembered that there was a £150 billion pension stealth tax at that time. Indeed, Ros Altmann, who was an adviser to Tony Blair, famously said that Labour “destroyed our pensions system”. The numbers involved as regards age-related allowances are small compared with that massive and unjustified smash-and-grab raid on our pension system, which destroyed the private savings culture that had been built up over so many years. Then, considering the insidious introduction of pensions means-testing, which was a massive attack on personal responsibility, it is extraordinary to hear arguments from the Labour party that the measures on age-related allowances somehow take away that personal responsibility, given that it introduced a whole system that systematically wrecked the taking of personal responsibility. We need to hear a bit more humility from the Labour party and a bit more of an apology.
Charlie Elphicke
On the contrary, I am really delighted that we have delivered on the pensions triple lock guarantee. Some hon. Members might recall that back in April 2000—it was a long time ago so perhaps the hon. Lady has forgotten—the basic state pension rose by 75p. That was the kind of care and concern we saw for pensioners from the Labour party, whereas the Conservative party is ensuring that we have the highest ever increase in the basic state pension, in cash terms, of £5.30 a week.
Julie Hilling
I thank the hon. Gentleman for giving way because he makes this link between the 75p increase, which did not go down well at the time but was based on inflation, and this increase, which is of course also based on inflation. Pensioners will get no benefit whatever—no increase in their pension—from this amount. It simply compensates them for the rate of inflation. In fact, they will lose out because it is based on the consumer prices index, not the retail prices index. For most pensioners, the inflation they feel is much closer to RPI; indeed it is above that because of the way their expenditure has to be made.
Charlie Elphicke
The hon. Lady forgets that the way the triple lock works involves not just inflation but earnings. At the moment, earnings are not rising at a great rate of knots because of the massive economic mismanagement of the Labour party that this Government are trying to put right, and that is not being assisted by the chaos in the eurozone. Over time, however, earnings will outstrip inflation and I suspect that will happen in the latter part of this year, so that has a bearing on age-related allowances.
Mr Marcus Jones (Nuneaton) (Con)
Does my hon. Friend agree that there is some hollowness to the Labour party’s argument regarding the state benefit? After all, Labour prevaricated for many years from the early 1980s in relation to the link to earnings that was taken away in the early 1980s. They had 13 years to rectify that, but did not do anything about it. Now we have put the triple lock in place, they are criticising that. Which way does my hon. Friend think they want it— with pensioners better off, as they will be under the Conservative-led coalition, or with pensioners being worse off as they were under Labour?
Charlie Elphicke
Exactly so. My hon. Friend makes a powerful point. It is true that we took away the whole issue of the earnings link, but we restored it, whereas the Labour party sat by as a spectator, including in its time in government. Overall, the package for pensioners means that no pensioner will lose out in cash terms. It is a fair settlement and this Government have looked after pensioners extraordinarily well.
Mr Gauke
Clause 4 makes changes to age-related income tax personal allowances, supporting the Government’s longer-term aim of simplifying the tax system by creating a single personal allowance regardless of age. In light of the Government’s commitment to increase the personal allowance to £10,000, together with our commitment that older people will benefit from future increases in the personal allowance above their 2013 allowance once these are aligned, there will be no need to continue with this complication in the tax system. One of the Government’s key objectives for the tax system is to make it simpler and easier for everyone to understand.
Finance (No. 4) Bill
Charlie Elphicke Excerpts(12 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Jonathan Edwards
I am grateful for that intervention. The hon. Gentleman is of course right. It is a matter of record, and it shows that when it comes to a vote in the House, the Labour party does not have a policy.
Charlie Elphicke (Dover) (Con)
The issue was not invented there so the Opposition could not vote for it, whereas although I disagree wholeheartedly with the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), I credit him with being principled, and principled in his voting, rather than trying to have it both ways, like Labour.
Jonathan Edwards
I am grateful to the hon. Gentleman for confirming that we are more efficient than the official Opposition.
Alun Cairns
It is interesting that the hon. Gentleman is extremely selective in whom he quotes and when he quotes them. He chooses to quote the OBR’s figures when it suits his argument on one occasion, but chooses to quote the HMRC’s figures when it suits his argument on another occasion. That relates back to the uncertainty that I mentioned.
Charlie Elphicke
I have a couple of points. I always understood that the issue of the 50p rate was not in our manifesto because the previous Government said that it was temporary. It therefore did not need to be in our manifesto, because it was always meant to be a temporary measure. On the nonsense that Opposition Members have spouted about business investment, has my hon. Friend seen paragraph 3.62 of the OBR’s “Economic and fiscal outlook”, which states:
“We therefore expect only moderate growth in business investment this year as the heightened uncertainty from the ongoing euro area difficulties limits firms’ investment plans”?
It is not the UK that is at fault, but the eurozone, which the Opposition wanted to take us into.
Charlie Elphicke
My hon. Friend is making an incredibly forceful and passionate argument. The hon. Member for Pontypridd (Owen Smith) said that according to the HMRC report, the 50% rate had raised £1.1 billion. He is playing fast and loose with the figures, because in the 2010 Budget, Labour said it would raise about £2.6 billion extra. It is an ever-disappearing amount of receipts. Is it not the case that when the rate is cut, it normally ends up increasing the take?
Charlie Elphicke
Much of the discussion on the 50p rate has been on whether it is an economic decision or a political one. My viewpoint is very simple. If we wanted a nice, easy time, and if our Ministers wanted a nice easy ride on the “Today” programme, where all those nice, gently liberal-leftie, metropolitan BBC people would congratulate us on doing nothing whatever, we would have left the higher rate at 50p. I am sure the hon. Member for Pontypridd (Owen Smith) would have approved and been happy to congratulate us. If, on the other hand, we wanted to take action and do the right thing economically—the one thing that really matters is getting this country growing as quickly as possible—even if it were politically hard for us to sell, we would support the entrepreneurs, wealth creators and aspirant people who create the jobs and money that make this country go. For my money, that is the bottom line. The economics trump the politics.
Owen Smith
I wholeheartedly agree with the hon. Gentleman that getting the country growing is the most important thing. The trouble is that that blue book he was waving around a moment ago, taking into account the 50p rate cut and all the other measures, says that the Government will increase GDP by 0.1%. Are they not failing?
Charlie Elphicke
I completely disagree. The Government are doing a great job. We have had the most difficult year, in which recovery was effectively postponed because the European and eurozone crisis caused massive uncertainty. I will not shirk from the point: that uncertainty has caused businesses to delay the business investment that was expected by about a year. The OBR, in the blue book that the hon. Gentleman says I am waving around, makes that perfectly clear. I will happily take him on on the issue of business investment. The situation has come to pass basically because of the eurozone. Also, the OBR says that business investment for the fourth quarter can be a bit lower than expected but that it often, statistically, bounces. It also says that the Government’s pioneering reduction of business taxes will have a positive effect in helping the country to grow.
The bottom line of economics is that we need to ensure more jobs and money as quickly as possible to help the country to grow faster despite the chaos and financial mismanagement in the eurozone. Let us not forget that Labour, if it had had its way, would have taken us into that chaos and into the euro. If Labour had won the election, it would also have carried on spending at an unsustainable rate and rapidly taken us the way of Greece, Spain, Italy, Portugal and Ireland, which would have put us in an extraordinarily difficult position.
On the revenue numbers, Labour’s central argument is that we should not cut the 50p rate because, first, we need to hit the rich and squeeze them until the pips squeak and, secondly, we are letting money go that would otherwise be brought into the Exchequer and are looking after our rich friends. That is its analysis. However, the summary in paragraph 4.7 on page 84 of the OBR report states:
“The Chancellor’s decision to cut the”
50p rate
“has an estimated direct cost to the Exchequer of £0.1 billion, excluding the impact of ‘reverse forestalling’ as people shift…income from”
one year to another
“to take advantage of the lower rate. The figure is small because the additional rate is now assumed to be close to its revenue-maximising level.”
In other words, it does not make much difference—£100 million here, £100 million there, out of a total budget that I believe is getting on for £700 billion, is a small amount, particularly given that it sends a positive message to aspirants, entrepreneurs and the people who work hard to deliver so much value-added for our country.
Michael Connarty
We can all pick selectively from the OBR report—I have referred to it quite a few times—but this is a comment based on the Government’s own estimate that there will be an inflow of £2.9 billion from increased activity by those who pay the 45% rate. There is absolutely no fact behind that yet. It is basically a comment based on a prediction by the Government. In other areas, again and again since they took office, they have been very wrong. It is a hope, not a statement of fact. The actual cost will be £3 billion until the money comes in that the OBR has accepted from the Chancellor’s estimates.
Charlie Elphicke
I thank the hon. Gentleman for bringing me on to my next point. The hon. Member for Pontypridd is fond of saying, “Ah, look at the HMRC impact report. It brought in £1.1 billion but the estimate was that it would then have brought in much more.” [Interruption.] Some £3 billion, he says. That was the estimate in the March 2010 Budget, which mentioned an additional £2.6 billion. In the June 2010 Budget forecast, that increased to £2.7 billion. However, when we look in detail at what happened and how much was brought in, it appears that the OBR and HMRC now estimate the figure to be £0.6 billion in 2012-13.
Owen Smith
I will explain to the hon. Gentleman why there is a step from year 1, when we anticipated it would raise £1.3 billion but when it actually raised £1.1 billion, to the subsequent figure of £3 billion. The explanation, of course, is that it gets far harder to bring money into earlier years. It gets far harder to forestall the income. That is what happened in the first year, but it would have been increasingly difficult to do so afterwards.
Charlie Elphicke
The hon. Gentleman makes that assertion. Let us consider the detail of what the OBR says, leaving aside forestalling. Page 108 of its report, which considers this matter in great detail, states:
“These steps might include labour supply responses (e.g. working less”—
working less hard, basically—
“taking a lower paid job, retiring early, or leaving the country)”.
As we know, many people have given up, upped sticks and gone—driven away by the anti-business, anti-aspiration policies of the Labour party.
Alison McGovern
Will the hon. Gentleman tell us exactly how many people have left the country? If so, what is his source for that statistic?
Charlie Elphicke
I am simply reporting what the OBR has said. I will not pretend that I am an expert on immigration to and emigration from this country. I might represent Dover but that does not mean I count everyone in and out. I have to trust the OBR. Having said that, in the past decade my constituents have complained that an awful lot of people seem to have come in. They are very upset about that and think there could have been more border security. But that is not the key point of this debate.
Harriett Baldwin
I am listening to my hon. Friend’s excellent speech with great interest because of his expertise as a tax accountant.
Harriett Baldwin
Tax lawyer even. Was he as surprised as I was at the £16 billion to £18 billion of forestalling measures taken after it was preannounced that the rate would rise to 50p?
Charlie Elphicke
Very much so. My hon. Friend makes a good point. It is also in the OBR report. These are the forestalling measures—[Interruption.] Labour assumes that people forestall for only one year and that the income will suddenly pop up the following year. That is not what really happens. Often people will take a long career break. [Interruption.] I shall give the hon. Member for Pontypridd, who is chuntering from a sedentary position—
The Temporary Chair (Mr Jim Hood)
Order. I will not accept this happening across the Committee. Right hon. and hon. Members should know better.
Charlie Elphicke
I will give the Committee an example. Let us say that I earn £150,000. Obviously, as a Member of Parliament, I do not, but let us assume that I did and that I did not feel like paying the 50p rate. What could I do? People’s response—the market response, if one likes—is to set up things such as personal service companies, and then we will not see the 50p tax rate again. They will shove money into their personal service companies and pay the small companies rate of taxation. They then sit tight and pay a very low dividend rate of taxation when they get the money out as and when they see fit. Alternatively, they do this trick where they loan themselves lots of money and pay an extraordinarily low beneficial loan rate of tax. I think that such behaviour is wrong. The Labour party ought to know about this not just because of Ken Livingstone but because others of them are up to it as well. They should come clean and be a bit clearer with the Committee about their understanding that people will avoid and forestall for good.
Mark Durkan
Is the hon. Gentleman trying to tell the Committee that none of those schemes or scams will happen under the 45% rate?
Charlie Elphicke
With the 45% rate, there is less utility and less maximisation of revenue from doing so. Of course, it is marginal, but the unacceptability of paying—paying, not avoiding—at 45% is less than it is at 50p. People resent 50p and think, “These people are trying to stuff me and take all my money away.” The 40p rate was well settled and people’s behaviour was sort of booked in. The judgment is that the most revenue will be raised halfway between the two because, on the one hand, people will think it acceptable—they will not go the extra mile to avoid it—and, on the other hand, they will not think they are being fleeced as they were under the so-called temporary 50p rate, which Labour is now saying was not temporary.
Charlie Elphicke
I will give way to the hon. Gentleman one more time, but I would ask him to say whether it was always the intention that the 50p should be temporary. Yes or no?
Owen Smith
I have already answered that three times in this debate, so I am not going to repeat myself. Yes, the rate was temporary, although we would not have got rid of it for the whole of this Parliament. However, let me remind the hon. Gentleman what the Business Secretary’s response was to the argument, which he has just made, about the equanimity with which people will pay full tax at the 45p rate: “Pull the other one”.
Charlie Elphicke
The Business Secretary is well known for having strong and principled positions from which he never resiles. The hon. Gentleman makes a fascinating point, although I do not know the detail of that quotation.
Let me turn to tax planning, and avoidance and evasion. As I have said, people set up personal service companies and, quite frankly, fiddle the system. To be honest, we need stronger anti-avoidance legislation to stop that kind of thing. However, the important point is that we need it if the rate is at a level at which people regard it as socially acceptable to pay, and do not feel that they are being completely fleeced.
Mark Reckless
My hon. Friend has substantial expertise as a tax lawyer. Does he think that a “look-through” anti-avoidance measure for personal service companies of that type would work?
Charlie Elphicke
That is a really interesting question. In practice, it is incredibly difficult to distinguish between the person who is setting up a personal service company simply to play the system and the person who is in business and is genuinely using such a company so as not to go bankrupt. It is difficult to draw the dividing line to distinguish the husband and wife who are simply trying to play the system—that often happens—from the genuine business that is acting for true commercial purposes. It is quite invidious to separate the two.
It is better to set the rate at a level where, as the OBR would put it, the willingness of high-earning individuals is such that they regard it as slightly more socially acceptable to pay. Indeed, the OBR was not just the Exchequer’s patsy on this issue; rather, it was independent. As the OBR says on page 109 of its report, it reviewed in considerable detail what the HMRC report said about what the revenues would be, in considering whether to reduce the tax rate to 45p. It looked at the methodology used by the Institute for Fiscal Studies in the Mirrlees review, at the work of Brewer et al, while also adjusting for forestalling—a point the hon. Member for Pontypridd raised—and at the HMRC study on the underlying behavioural response. Therefore, a lot of work has been done on what exactly the position is.
It is true, of course, that things are quite uncertain. The cost to the Exchequer might not be £100 million. Indeed, students of tax history will know that when the rate originally went from 80% to 60%—a massive cut—the revenues did not fall, but rose dramatically. Did receipts fall when the tax rate was then cut from 60p to 40p? No, they rose dramatically. My understanding of the history, therefore, is that if we reduce the rate, we up the take. There is real risk and massive uncertainty. Indeed, rather than costing the Exchequer £100 million, this measure may well make the Exchequer up to about £500 million. From the history, it seems far more likely that we will have an increase in the take, which will mean improvements for our schools and hospitals, and in our ability to pay down the massive debt that the previous Government saddled us with. I therefore think this is the right policy at the right time.
Mr Gauke
As we all know, the previous Government were reluctant to take any meaningful steps to reduce the deficit. However, they could point to the imposition of an increase of more than 10% in the additional rate in three months, even though there was scepticism at the time about the projected levels of revenue. It is also worth pointing out that the then Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), accepted that the increase was “a temporary measure”. He recognised some of the difficulties with the policy. He accepted that the behavioural effect would steeply reduce potential revenues—the estimate at the time was that the measure would reduce revenues by two thirds. That is about £4 billion of revenue that he accepted would never materialise, owing to behavioural adjustments, such as individuals deciding to work less or not remain in the United Kingdom. He also accepted that the 50p rate would damage the UK’s international standing, giving us the highest statutory income tax rate in the G20. He also accepted, I am sure, the fact that although the measure was temporary, it would be politically difficult to reverse.
However, I have to say to the Opposition, and to the many hon. Members who have participated in this debate, that although Labour may claim to want to raise taxes on the wealthy, the reality is that the 50p rate was not succeeding in getting the money in. I do not think that it is a coincidence that the 50p rate was in place for only 36 of the 4,758 days for which the previous Labour Government were in power. When we came into office, we inherited a tax rate that we were told would damage our competitiveness, that would bring in questionable levels of revenue and that was always expected to be temporary.
Mr MacNeil
It is not the taxes that are the problem but the level of the taxes, who is controlling them and what they are doing with them to stifle economic growth.
Furthermore, Amanda McMillan, chief executive of Glasgow airport, said:
“On the question of devolution of APD, Glasgow Airport has always been supportive of this proposal given the Scottish government’s more progressive approach to aviation and its greater appreciation of the role the industry plays in supporting the growth of the Scottish economy.”
Mr MacNeil
I am sorry but there is no time. [Hon. Members: “Ooh!”] If I have time later and the hon. Gentleman wishes to intervene then, he may.
The Scottish Government Transport Minister, Keith Brown, said:
“We need to be able to deal with the competitive and connectivity disadvantages that Scotland faces and if APD were devolved now we could provide the means to incentivise airlines to provide new direct international connections to Scotland, benefiting our aviation industry and our passengers and supporting the growth of the Scottish economy. The UK government needs to listen to the many voices in Scotland who clearly want to see full devolution of”
the APD powers to Scotland. The Scottish Chambers of Commerce’s chief executive, Liz Cameron, said:
“Current rates of APD seem more suited to controlling capacity constraints at Heathrow than they do with the needs of regional airports, and devolution of this tax would afford the Scottish Government the opportunity to create an air transport package for Scotland designed to improve our direct international connectivity.”
A range of voices throughout Scottish industry and aviation are clearly calling for the devolution of APD.
We have been calling for the devolution of APD to the Scottish Parliament for some time. Most recently, we called for it to be part of the Scotland Bill, but unfortunately the Government and Labour opposed the idea. Today, however, we are arguing again for the devolution of APD in a different context. We do not need to argue the viability anymore, because the Government conceded that point in agreeing to devolve APD to Northern Ireland.
Charlie Elphicke
We have airports in Kent. Why should we not have regionalisation of APD for all regional airports? Why should it just be special pleading for Scotland?
Mr MacNeil
The hon. Gentleman makes a good point. I hope he will join me in the Lobby, because if it is good enough for Scotland, surely it is good enough for Kent. We are happy enough for it to be devolved to Kent if it wants it. We are not the type of people to want a power for ourselves that we would deny to others. We are not the type of people who would give it to Northern Ireland but not to Scotland.
The amendment is straight and to the point. It would allow the Scottish Parliament to set APD rates for Scotland. By passing it, under the rules in the Scotland Act 1998, the Treasury would redirect those specific funds to the Scottish consolidated fund instead of to a UK consolidated fund. With this economic lever, we in Scotland would have the ability to set our own rates, although owing to legal reasons we could not increase them—but frankly why would we? Higher rates of such taxes and the punitive fuel duty can only increase inflation and reduce productivity.
The evidence is growing in our favour. My office has discovered that Scotland has been getting the short end of the stick on non-EU flights. According to the Department for Transport, Scotland has only four non-EU direct routes—air routes that fly in and out of Scotland to a non-EU country. Let us compare that with our Celtic and Scandinavian neighbours. Norway and Ireland are connected to key emerging economies such as Russia, and Denmark is connected not only to Russia but to China, Japan and 24 other non-EU countries. Norway has connections with about 15 non-EU destinations, and Ireland with about 10, while Scotland is trailing with four. It is remarkable, given all this, that Edinburgh is such a successful financial centre. Arguably, Scotland was comparatively better connected in the days of the Icelandic sagas than it is now, with the Westminster Government controlling APD.
The UK Government are responsible for the negotiation of air routes with other countries. In short, Governments agree to routes in international air agreements and later decide where the routes go. In that capacity, the Westminster Government have failed Scottish airports. For more than 65 years, Governments have argued for more and more routes to the south-east of the UK, with only a handful making the road north of the M25. Devolving APD would take the pressure off Heathrow, with the calls for a third runway. Given that Monday is St George’s day, this measure would be almost a St George’s day gift from the SNP to the people of the south-east of England.