Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 12th October 2010 Commons Chamber

[Mr Hoban]

The Bank of England engages in market activities on a day-to-day basis, but before 1997 the same institutional separation existed, with the Chancellor setting interest rates and the Bank responsible for debt management. The separation of responsibilities improves transparency and confidence in debt management and helps to keep the cost of Government debt as low as possible. My hon. Friend will appreciate how important that is, given the size of the deficit that we inherited from Labour.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

But is it not clear that, as my hon. Friend the Member for Edmonton (Mr Love) was saying, the raising of the spectre of a return to quantitative easing signalled by the Chancellor last week to the Bank of England is a clear sign that the anti-growth strategy pursued by the Government risks a major slow-down in our economy? Will the Minister take responsibility and stop playing ideological games with fiscal policy in the hope that monetary policy will miraculously pick up all the pieces?

[Mr Hoban]

I welcome the hon. Gentleman to his new position. He has been out of Parliament for the past five years and he should perhaps take this opportunity to reflect on the record of his predecessors and the deficit that they racked up in Government. Is he departing from the practice that the previous Chancellor of the Exchequer followed when it came to quantitative easing?

Finance (No. 2) Bill

Chris Leslie Excerpts

Monday 11th October 2010 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

As the astute observer may have noticed by now, the Bill is a largely inherited set of technical measures, with the general election having interrupted the conventional timetable and truncated the previous Administration’s Bill, which would have introduced many of the same provisions. No matter; we have had a successful and thorough debate. The hon. Member for Bristol West (Stephen Williams) noted, I think sarcastically, that he was looking forward to the fun and delights of Committee, but we have covered the Bill’s territory well.

I pay tribute to the hon. Member for Skipton and Ripon (Julian Smith) for his very good-quality maiden speech. He made the case for the small business community in his constituency strongly and passionately. It is a fine and beautiful constituency, and I was born near or within it at Airedale hospital, so it has a special place in my heart for that reason if for no other.

The hon. Member for North East Somerset (Jacob Rees-Mogg), who is no longer in his place, made a series of interesting observations about long cigarettes, the weight of aircraft and the creeping Europeanisation of the world in general, and I look forward to his pearls of wisdom in Committee. The hon. Member for Watford (Richard Harrington) rightly noted the measures in clause 14 on film tax credit arrangements, and the hon. Member for Portsmouth North (Penny Mordaunt) talked eloquently about the important changes in clause 31 affecting asbestos compensation settlements.

I agreed very much with the hon. Member for Devizes (Claire Perry)—that may come as a shock to her—about the provisions for shared lives carers. Being a carer is a big commitment and requires a lot of patience, understanding and hard work, but it offers adults who need support owing to their health or disability a valuable opportunity to live with people who can give them the help that they need, share their hobbies and interests and so on. We, too, therefore welcome the simplification of the tax treatment of foster carers and shared lives carers so that their costs and expenses are recognised more fairly in the tax system.

The hon. Member for Portsmouth North mentioned the clauses on penalties for failures to make tax returns and pay taxes. We clearly need a regime that is tough on evasion and that incentivises prompt payment, but we also need to ensure fairness in the system so that entirely innocent people and companies are not caught in an unfair penalty cycle. As the Institute of Chartered Accountants has noted, we need to ensure that we monitor that regime carefully, especially for very small businesses that do not necessarily have in-house accountants or bookkeepers.

A number of other measures were mentioned in the debate. The hon. Member for Dundee East (Stewart Hosie) talked about the safeguards for investors in venture capital schemes and the insertion in the rules of a financial health requirement, to prevent tax reliefs from falling into “firms in difficulty”. That raises a number of questions that we will want to explore further in Committee.

The hon. Member for Macclesfield (David Rutley) rightly highlighted the clause about the deduction of income tax at source. It is a positive thing that there will be a new online mechanism for customers to lodge the fact that they are returning their income tax deductions, but that prompts the question of how HMRC enables access for customers through downloadable information and whether customers can identify their tax office correctly. Again, we will want to pursue those points in Committee.

Very few Members noted the Bill’s provisions on the automatic enrolment of employees in pension schemes from 2012, which are technical measures to facilitate the new pension scheme arrangements. That national employment savings trust is incredibly important—something that the previous Government rightly put in place for all workers between the age of 22 and retirement age earning more than £5,000 a year, unless they were already in a pension scheme. I particularly want to press the Minister on that matter, because I understand that the consultation process said that by 30 September we would know the Government’s views on that automatic enrolment arrangement. We have passed that point, and I do not think that we have had any information on the issue.

It is a curious and fragmented process that we have entered into with this chopping and changing between Finance Bills. The cynic in me detects the possibility of some highly tactical games being played by Treasury Ministers. Perhaps I am wrong, but their approach to finance legislation, as my hon. Friend the Member for Wallasey (Ms Eagle) suggested earlier, seemed to create a toxic, bad Bill—perhaps the one that was pushed through before the summer recess, possibly without the Liberal Democrats quite noticing how bad it was. Other toxic, bad Bills are to come in due course, such as those on scrapping the health in pregnancy grant, the savings gateway and the child trust fund arrangements. It is interesting to see how Ministers are packaging up these measures. Machiavelli may have some observations on that particular tactical game.

As my hon. Friend also mentioned in her opening speech, a number of measures are conspicuous by their absence from the Bill. My hon. Friends the Members for Edinburgh East (Sheila Gilmore) and for Islwyn (Chris Evans) mentioned the video games tax relief arrangements for that particular industry, which many firms in my Nottingham constituency have also been urging and expecting. They were disappointed when the Government withdrew them. My hon. Friend the Member for Bassetlaw (John Mann) referred to the investment allowances to help businesses to grow and ensure that they invest in plant, infrastructure and capacity to enable them to prosper. I might have disagreed with him slightly in his comments on VAT, but he made a number of points that are worth deeper thought and observation.

The context of the Bill says everything. Although the measure is wide ranging, it is absolutely a missed opportunity—perhaps the calm before the storm of the spending review. We know that many failings arise from the legislation, basically because of those aspects that are not in it. Insufficient steps are being taken to clamp down on tax evasion, and serious doubts are now growing, as my hon. Friend the Member for Wirral South (Alison McGovern) mentioned, about the capabilities of a depleted HMRC, should its budget be unfairly constrained.

The Bill is particularly a missed opportunity for legislation to promote growth and generate revenues, and that is what it will be remembered for. We should look at the growth deniers on the other side of the House. My hon. Friends the Members for Scunthorpe (Nic Dakin), for Sefton Central (Bill Esterson) and for Islwyn all mentioned TINA—there is no alternative, as the former Prime Minister, Lady Thatcher, described it—and that notion has infected those on the Government Benches. They are doing a good job in sticking to their message and trying to ram their points home, but it is becoming a little obvious that the script is getting somewhat old.

I was impressed in particular by the comments of the hon. Member for Boston and Skegness (Mark Simmonds)—the ideology that he has formulated of the expansionary fiscal consolidation strategy and the theory that he has announced that cuts can stimulate economic activity. His comments were mirrored to a certain extent by those of the hon. Member for Mid Norfolk (George Freeman). We need to hear much more from the hon. Member for Boston and Skegness on that strategy. It is clear to me that the Conservative party is focusing its energies exclusively on this ideological crusade in cutting investment, rather than looking equally at the other side of the balance sheet—rebuilding revenues—which surely must be attended to.

Everybody knows that the deficit position was largely caused by reduced revenues following the credit crunch and the banking crisis, and growth is the best antidote to that. It is quite clear also that the Government see public services and economic regeneration as somehow negative aspects—a glass half empty—whereas Labour Members see growth, public services and investment in infrastructure as a glass half full and an opportunity to expand. Through that virtuous cycle, we will repair the public sector balance sheet.

My hon. Friend the Member for Edinburgh East asked whether we wanted to burden future generations with a legacy of high unemployment and low growth, and that is absolutely the right question to pose to Government Members.

It is important to look at the wider context in which the Bill was presented, but we can already see, as the news develops, that growth is fragile and that confidence is wobbling. I think that my hon. Friend the Member for Wallasey mentioned a report in The Times that showed that finance directors’ confidence is at its lowest level in 18 months, and 34% of those surveyed in a Deloitte poll said that they expected the economy to go into reverse. We sincerely hope that that does not happen. The hon. Member for Dover (Charlie Elphicke) said that confidence is a critical ingredient that plays a massive role in the economy, and it is a great shame that we can already see the steps taken by the Government eroding some of that confidence. That has its roots in the decisions made in the Budget before the recess.

The downgrading by the Office for Budget Responsibility of the forecast for 2011 from 2.6% to 2.3% suggests a £5 billion loss in receipts because of the smothering of economic activity. That is compounded by the many anti-growth policies pursued, and messages given, by the Government parties. Tonight, hon. Members have talked about regional development agencies being scrapped and the Sheffield Forgemasters loan not being granted.

There are a number of ways in which the economy is at risk. It is important that, throughout the passage of the Bill, we explore the Government’s strategy and what more can be done to ensure that we pursue a pro-growth strategy. We might not divide the House tonight, but we put the Government on notice that we expect and need stronger pro-growth measures and legislation in future. We will scrutinise the detail of the Bill closely in Committee. I look forward to hearing what the Minister has to say.

Amendment of the Law

Chris Leslie Excerpts

Wednesday 15th September 2010 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I want to make a couple of specific points about the motion. Although I accept that the Minister has said that the Finance Bill will be quite narrow in scope, there are a couple of provisions in the motion that suggest that there could be an opportunity for the Treasury to introduce a series of other measures. The Minister, as is the practice now, tried to set out the context in which the Finance Bill would be set, and obviously the Opposition completely disagree with the Government’s approach.

It is quite clear that a strong dollop of dogma has been introduced into the Government’s financial strategies. Rather than sensibly and prudently address the deficit, the Government are going far further, far faster than is necessary, which is having a dilatory impact on the economy at large. However, that is a debate for another day.

The specific element of the motion that I want to address is item No. 6, the “Collection of income tax on payments”. Senior officials from the Minister’s Department have been giving evidence to the Treasury Committee this morning about the significant concern that has been expressed by many of our constituents about problems with the pay-as-you-earn system in collecting income tax that is owed, perhaps when miscalculations were made. Some reports suggest that 1.4 million people owe about £2 billion, which is an average of £1,400 each.

There is significant concern across the country and I am glad that the permanent secretary and his colleagues have given a concession today about the interest elements being waived, in part, when sums above £2,000 are owed. That prompted me to look carefully at some of the regulations that the Minister has introduced, and I noticed that he laid statutory instrument No. 1879—the Taxes and Duties (Interest Rate) Regulations 2010—which sets out that an individual who owes money to Revenue and Customs has to pay interest on it at 3.5%, but if HMRC owes money to an individual it will pay only the absolute, basic minimum, which I think is 0.5%. That disparity is controversial and many people find it difficult to understand why, in all fairness, there is not a two-way street. I wanted to use this opportunity to highlight this issue; I have prayed against that statutory instrument and I hope that we will find time to debate it.

In general, will the Minister iterate an apology from his Department about what has been happening with the PAYE arrangements? Will he also undertake that concessions will be given on the interest owed on any sums to try to make it a little easier for those who face an unexpected bill to bear that cost?

Proposed Public Expenditure Cuts

Chris Leslie Excerpts

Monday 13th September 2010 Commons Chamber

[Mr Osborne]

It is not often that I say this, but I agree with the right hon. Member for Kirkcaldy and Cowdenbeath on that. Maybe one day he will turn up in the House of Commons and explain what he meant.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Instead of hitting the sick and the disabled with these cuts, why does not the Chancellor tackle the bankers’ welfare bill by reversing his ridiculous decision to give a £1 billion cut in corporation tax to the banks?

[Mr Osborne]

Over the past 13 years, Labour allowed the banking system to become completely unregulated and presided over the biggest banking crisis of our lifetime. At the time of the general election, I remember arguing in the television debates for a bank levy to be introduced in this country even if other countries did not introduce it. The then Chancellor opposed me on that. We have now introduced the levy, and I see that it has been universally accepted by the people who opposed it just a few months ago. The receipts from the levy massively outweigh any gain that comes from the lower corporation tax, and that was taken into account when I set the level of the bank levy at £2.5 billion.

Office of Tax Simplification

Chris Leslie Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

I always got the impression from John Whiting that he had already read the code—and Michael Jack may also know a little about it. I take my hon. Friend’s point, but in 12 months they will be able to make a good start.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Many hon. Members have made points about fairness. Will the Minister ensure that the OTS will not simply dance to the tune of the wealthiest in society, and their accountants, in putting issues on the agenda? I refer to the decision in the Budget to reduce the backdating of new claims and changes of circumstance for tax credits from three months to one month, at a cost of £1 billion to ordinary people. Is it not the case that this Government are more interested in helping the wealthiest and putting obstacles in the way of the least well-paid?

[Mr Gauke]

I really do not accept the point that having a simpler tax system, which is understandable by everyone and not just those who can afford expensive advice, is in any way a regressive step. As my hon. Friend the Member for Dover (Charlie Elphicke) said, it will benefit everybody and we are pleased to be able to do it.

Finance Bill

Chris Leslie Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

Again, I refer the hon. Gentleman to the distributional charts, particularly those that examine these matters on the basis of the expenditure decile, which academics increasingly believe provides a better examination of those who are suffering from material deprivation. That approach demonstrates that the measures are progressive, when taken as a whole, and that the wealthier sectors of society are paying more. The distributional analyses show that the single tax measure that had a regressive effect was the dumping of the 10p rate of income tax that was announced in 2007, which hurt the bottom five deciles and benefited the top five. That does not seem fair, and I am glad that we were not part of the Government who did that.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the Minister give way?

[Mr Gauke]

I will, because the hon. Gentleman has been such an assiduous attender of these debates, but I want then to make some progress.

[Chris Leslie]

I am grateful to the Minister for giving way. The distributional tables in section A of the Red Book that he mentions are quite interesting, but will he remind us why they extend for only two years? Does he plan to lay any more tables before the House, soon—I do not know whether we could get them before the end of Third Reading—so that we can talk about when the real cuts to benefits and to the poorest people will kick in?

--- Later in debate ---

[Mr Gauke]

This Government have provided greater distributional analysis than any Government have done before. Clearly, in very difficult times, when it is necessary to raise substantial sums and to reduce the deficit very dramatically, we have managed to do so in a way that has spread the pain. It is not the Government’s desire from any great sense of pleasure to be taking tough measures, but that is unavoidable—we cannot ignore it or hide from it—and, yes, there will be pain, but there is no alternative.

Our long-term objective remains to increase the personal allowance to £10,000, as set out in the coalition agreement, and we have made progress in the Bill and the Budget. We are increasing the personal allowance on income tax and taking almost 1 million people—the lowest earning income tax payers—out of income tax altogether. That will also benefit 23 million people who work in Britain by up to £170 a year.

The second matter that the Bill stands for is freedom—freedom for the private sector to grow, unconstrained by uncompetitive tax rates. The Bill will take the first step towards that by cutting the corporation tax rate to 27%, and it will be cut every year until it reaches 24%—the lowest rate of any major western economy, one of the lowest rates in the G7 and the lowest rate that this country has ever known.

Hon. Members were concerned that cutting the main rate would mean that banks did not pay their fair share. Many sectors, including manufacturing, will benefit from the reduction in corporation tax, but we have made it clear that the reforms outlined in the Budget will ensure a greater contribution from the banking sector—one that far outweighs any benefit that they receive from lower corporation tax rates. The banking levy announced in the Budget is a surgical approach reflective of economic risk and intended to encourage banks to move to less risky funding profiles. Banks will pay at least £2 billion more in tax as a consequence of those proposals.

The hon. Member for Nottingham East (Chris Leslie), who has contributed a great deal to the debates on the Bill, was particularly concerned that the banks will be let off for risky behaviour. That is not the case, but I hope he will accept that a targeted approach is the best way forward. Tax competitiveness is good for employers and society as a whole, and the bank levy allows us to be competitive, while ensuring appropriate tax treatment for those activities that pose the greatest risk.

[Chris Leslie]

I will certainly look closely at the bank levy consultation, but I was looking at the Hansard report of the costs to the Exchequer of the corporation tax giveaway to the banks. It is not just £400 million in the final year, 2014-15; there is also £100 million of lost revenue in 2011-12; £200 million in 2012-13; and £300 million in 2013-14. Cumulatively, over the period of the Budget, there are £1 billion in corporate tax giveaways to the banks. Surely, if there really is no alternative, the hon. Gentleman should think again about that cash-back arrangement.

[Mr Gauke]

The hon. Gentleman was a Member of the House in the early days of the previous Government, so he knows all about rolling up numbers. I could roll up the numbers for how much will be raised from the bank levy—I do not have the details in front of me, but we would get to about £8 billion—but I am not sure that that is a terribly helpful way of approaching things.

The corporation tax reduction is just one part of the wider package to build a private sector-led recovery. Instead of increasing the small profit rate by 1%, we will cut it to 20% in next year’s Bill, which will benefit some 850,000 companies from April 2011. We are increasing the threshold at which employers start to pay national insurance contributions and have announced a package of support for small businesses. The package will also include a reduction in the writing-down value of plant and machinery allowances to 18% and a reduction in the annual investment allowance to £25,000. That will still provide for allowances that are broadly in line with depreciation, while the annual investment allowance will still cover the annual qualifying expenditure of 95% of businesses. Furthermore, we are reducing the main rate of corporation tax this year and changing allowances in 2012. We are giving companies a timing benefit that will form part of the £13 billion extra that will be invested as a result of the changes.

The third and final area that we are addressing is fairness. Clause 2 increases the rate for capital gains tax for higher rate payers to 28%. That progressive change will substantially reduce the incentive for individuals to disguise their income as a return on capital. It will ensure that the appropriate rate of taxation is paid, which is fair in itself.

Avoidance is a significant issue for the Government and it has been a significant topic throughout the Bill’s passage. It was raised with reference to corporation tax and capital gains tax, and it is the target of clauses 8 and 9, which protect about £200 million of revenue a year. I assure the House that the Government are absolutely committed to tackling avoidance and evasion robustly.

--- Later in debate ---

[Matthew Hancock]

I am always delighted to talk about when the previous Labour Government lost office, so I thank my hon. Friend for that intervention. Let me go through a few more elements of the economic evidence. I have here an extremely good literature review, by Policy Exchange, the think-tank, which lists—

[Chris Leslie]

Tories!

[Matthew Hancock]

What Policy Exchange has done is review the economic literature, which is what I am looking at. Perotti, in 1999, said:

“High debt levels are associated with higher probability for fiscal policy to have”

expansionary effects. The European Commission—not something that Labour Members tend to barrack—said: “Expenditure cuts may exhibit” expansionary features,

“even in the short and medium run.”

So the economic evidence is there. The best quotation from that review is this:

“Though now quite well established in economic literature”—

referring to the argument that fiscal consolidations promote growth—

“this work is still feeding its way into the wider public consciousness.”

No doubt part of the reason for the slow move of that argument into the public consciousness is the argument put forward by Opposition Members that it is not true.

There are two other important ways in which consolidation will get to higher growth. The first, of course, concerns expectations of future tax rates. If people around the country can see that spending is out of control, they will anticipate that taxes might have to rise in future, whereas setting out a clear path for taxes makes it clear that there will not have to be sharp and immediate tax rises in future, even if that path includes some tax measures. That forward-looking element of human nature, which is so important in understanding how the economy works, matters at a personal level—for some people far more than for others, as I entirely accept—but it especially matters in the corporate world. Businesses look to the future to see how much tax they will be paying, as well as how much it will cost them to pay it because of the complexity of that tax. That is why it is so important to have both the simplification of the tax system that my hon. Friend the Exchequer Secretary—soon to be right hon. Friend, no doubt—set out, and the ladder down in headline corporation tax rate, which will set out a 1% reduction year on year so that our businesses know that Britain is open for business.

--- Later in debate ---

[Mary Creagh]

I am not saying people should buy everything new, but I am certainly not telling families in my constituency that when they have a second baby they should trawl around to the local hospice shop or British Heart Foundation shop in a desperate quest to get a car seat so as to take their child home from hospital without breaking the law. The hon. Lady says that those goods are in abundant supply. One of the important things about car seats is that if we buy them second hand, we have absolutely no idea whether they have been involved in a car accident. I am certain that no Member of this House has bought a car seat for their child—for their new baby—from a charity shop. What we ask for ourselves we should also stand up for in this House, and ask for our constituents.

[Chris Leslie]

When listening to interventions from the Government Benches, it comes as a shocking revelation to hear the notion expressed that those who are in financial difficulties can go round the charity shops looking for cots and prams. I do not quite see how they can do that for sanitary products or teething equipment, for instance: perhaps the hon. Member for South Northamptonshire (Andrea Leadsom) would suggest buying recycled baby bottles and so forth, too. All such products attract the higher rate of VAT at 17.5%, which will go up to 20% as a result of the Bill. Does not all this show a degree of condescension in the Conservative party’s attitude to those in the greatest need?

[Mary Creagh]

I think it does, and I also think it is indicative of the idea that the poor are no better than they should be, and that they should aspire to nothing better than charity shop purchases.

Finance Bill

Chris Leslie Excerpts

Thursday 15th July 2010 Commons Chamber

[Mr Chope]

Well, 1% is 1%. I am sorry that the hon. Lady seems to be rather unsympathetic to the plight of people who are trying to get motor insurance. Lots of young people need a car to get to work. They find the cost of motoring increasing all the time and they find the cost of insurance also increasing, yet the proposal before us is to increase that cost further—not massively further, but to increase it nevertheless.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

As I hope to be able to say in my contribution later, I agree with the hon. Gentleman on this point. I am astonished to hear the comments coming from the Liberal Democrats that they do not care about the costs of motor insurance, which, especially to young people, can be £1,000 or more. Will the hon. Gentleman also note the perverse consequences for those who go uninsured? Yes, they might get six points put on their licence if they are caught, but the fine is often just £300 or £400, so they would almost be better off to take the risk and be fined rather than pay the cost of the insurance. That has to change.

[Mr Chope]

The hon. Gentleman is absolutely right. What he said is no great revelation for young people when they go out and party or communicate with each other via modern means of communication. They know that the risks of getting caught are not that great, and that if they are caught, the consequence will be penalty points on their licence and a fine. They will often be able to pay off the fine over an extended period.

Young people now face very substantial insurance premiums and those from the most deprived areas are often those with the highest premiums. One factor that is taken into account is the postcode. If the chance of someone’s car being stolen is high because of where they live or because they do not have garage, the premium will be higher than for someone who perhaps lives in a rural, perhaps law-abiding community. That is an additional problem that these young people face when it comes to motor insurance.

--- Later in debate ---

In subsequent years our pensioners will pay about £84 million a year more in IPT—in total about £355 million over the course of this Parliament. Hon. Members will be concerned about that.

[Chris Leslie]

My right hon. Friend is making an incredibly important point. Many pensioners in my constituency will be oblivious to the impact that this stealthy tax rise from the Government will have on them, especially as they are diligent in keeping up with their contents insurance, buildings insurance and motor insurance. In many ways, the Government are grinding the burden of taxation on their shoulders. My amendment on advertising the increase in IPT was not selected. Does my right hon. Friend agree that the cost of the Treasury’s imposition should be more prominently displayed on policy documents so that at least pensioners are aware of what the Government are doing?

[Mr Byrne]

My hon. Friend raises an extremely significant point. I am sorry that his amendment was not selected. The insurance industry will almost certainly pass on the increased taxes directly to consumers. That has been the history of increases in this kind of tax. So there is a strong case for advertising the increase more widely. I am sure that all of us as politicians will do our level best to make the news known in our constituencies.

--- Later in debate ---

[Mr Bone]

I am grateful for the hon. Gentleman’s intervention, but I know that I will get into trouble if I respond to it in detail. I suggest that he turns up in the Chamber when my private Member’s Bill is considered on 4 February 2011, so that we can have that debate.

My hon. Friend the Exchequer Secretary has an historic opportunity today to stand up and make a name for himself and this Government by encouraging people to take out insurance.

[Chris Leslie]

I am glad that we have had the opportunity to debate these important tax changes. I have the greatest respect for all my constituents and the British public generally, but when we talk about financial matters such as pensions, savings and insurance, there is a tendency in the British culture for the fog to descend and for people to say, “Well, these things are very complicated and I don’t quite understand them.” A lot of people therefore get trapped by their own inertia in certain policies, bank accounts or pensions, and they do not necessarily shop around to get the best deal. I am afraid that insurance products are in the group of services to which our constituents sometimes do not pay attention. I urge members of the public to examine their policy documents and payments closely because insurance can represent a significant cost, although it is a merit good and something that we should encourage people to take out.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Some areas of the country, including part of my constituency, face significant flood risk. Does my hon. Friend agree that such a tax increase on insurance will mean that people who are already paying significant amounts to protect their homes and lives will face an even greater cost? If those people do not continue to insure themselves, however, it will wreak havoc on lives throughout the country.

[Chris Leslie]

My hon. Friend is entirely correct. It is important that we ensure that all our liabilities are properly covered, so that the cost of our individual failings or mishaps does not fall on the general taxpayer. Responsible individuals have to insure themselves.

[Mr George Mudie (Leeds East) (Lab)]

My hon. Friend says that people do not shop around. Does he agree that any process of shopping around is not helped by the way in which insurance companies sign people up to policies on standing orders with small print that allows that policy to be renewed without consulting the customer? Even if the customer wishes to change their policy because of a large increase in their premiums, they can discover that the small print means that they have to let the policy run because they are required to give notice.

[Chris Leslie]

That particularly pernicious practice merits much closer scrutiny. I do not know whether it is allowed to happen because of a legal loophole. People face dangers when they sign up to unending direct debits, especially if they have been attracted to an insurance policy because of a discounted initial arrangement but then discover that the payments have been ramped up. By the time they realise, from their bank statement or whatever, that the cost is so much more, it is too late to exit from the policy. I hope that any practices that tie customers in to such policies unnecessarily can be stopped.

Insurance premium tax was, of course, a Conservative initiative, introduced back in 1993, I think. We are all concerned about the deficit and revenues, so reluctantly we all have to accept the tax as part and parcel of our general revenue stream, but it is worth pausing to reflect on the impact of the charge on the behaviour of customers who want to take out insurance. Of course, there are different effects for different types of insurance. The amendments highlight both ends of the scale.

I am not sure that I share the sympathy for amendment 18 on private health insurance, because the general public already effectively pay for health cover through the tax that they pay towards the NHS; that is far and away the best health insurance that all of us could want. If we are all part of that, and pool our resources effectively, we ensure a better quality of health care for ourselves. I hear the points made by Government Members, who say that private health insurance removes the burden from the NHS, but if we are all part of the system together, and make sure that we all take part in it, we have a better collective service.

[Thomas Docherty]

Does my hon. Friend agree that people who have health insurance get fast-tracked, and receive a large benefit, in that they can jump waiting lists?

[Chris Leslie]

Thankfully, Labour has shifted the terms of reference for this debate, and not just in this country, where the Liberals and the Conservatives—the Conservatives in particular, to be fair to the Liberals—have now accepted that the NHS is one of the jewels in the crown of our welfare system. It is respected worldwide, and there is no longer any attempt, or at least no overt attempt, by the Conservative party to unwind the change that has been made, although having listened to Government Back Benchers, there may be some straws in the wind. I agree more with the hon. Member for Christchurch (Mr Chope) on amendment 19 on motor insurance.

[Mr Redwood]

Was the absence of support for amendments 18 and 19 from the Labour Front Benchers a sign that Labour will not vote for those two amendments?

[Chris Leslie]

I have absolutely no idea. As a humble Back Bencher, I simply make my comments and observations. Clearly, I will happily take a lead from our Front Benchers; they are immensely sensible individuals, and will make their arguments. But I have my own observations to make about the changes.

One of those observations is that there is a level of compulsion that distinguishes motor insurance. In a way, private health insurance is an entirely discretionary commodity, so I suppose one could argue that paying tax on it is a matter of choice, but that is not the case for drivers and for motor insurance. As the right hon. Member for East Yorkshire (Mr Knight) said, in the case of third-party car insurance we are talking about adding a tax on top of a charge that is effectively a requirement in law. That raises the hackles. It makes me feel aggrieved that there is a bit of opportunism on the part of the Treasury. It is a parasitical choice effectively to cream off more money from something that the general public have no choice but to get.

I suppose that those on the Treasury Bench might say that members of the public could give up driving and stop purchasing cars. Perhaps that would be good for the environment more widely, but in the real world, people have to get around, have to get to the shops and to school, and have to commute. It is part and parcel of ordinary life. I am very worried—genuinely worried—that ratcheting up insurance premium tax on motor insurance will create a disincentive for people to comply with the law, take out insurance, and ensure that the cost is covered if any accidents occur or harm is caused to other members of society and the wider public.

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[Chris Leslie]

Absolutely. A lot of people, when they apply for insurance, will be asked what amount they wish to have—I am trying to recall the phrase—as the amount that one ends up paying before one can claim.

[Gordon Banks]

The excess.

[Chris Leslie]

I thank my hon. Friend for his assistance. On home insurance, the excess is typically £100 or £200. Those hon. Members who are IT-literate, and who use the interweb to purchase their insurance, will realise that on many sites there is a little bar that one can shift across the page to increase the excess to £400, £500 or more. It effectively means that people will rarely, if ever, claim against that insurance, and it thereby removes not only much of the cost of the initial premium, but the chances that they will ever use that product. Again, that will leave people under-insured, with poor cover, and with a poor product for what could be a great expense if they are broken into or have problems with internal flooding or other damage to their property.

In some parts of the country, particularly where there is a flood risk, far too many people are still uninsured, and the pressure that they put on the taxpayer more generally to pick up the tab will be great. In some ways, the measure is a false economy by the Treasury: it discourages people from taking out insurance, yet they will undoubtedly be under pressure to pick up the tab in flood-risk areas.

There is a rumour going around that the Treasury might also impose an extra tax on those who live in flood-risk areas in order to cover the extra costs to the taxpayer of flood-prevention work—yet another example of a crude and unfair measure. I am sure that the Minister will be happy to tell the House that that is not the case and to put our minds at rest, because it would be a shame if such a measure were to come forward.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Will my hon. Friend give way on that point?

[Chris Leslie]

Happily.

[The First Deputy Chairman]

Order. Just before that happens, can we please restrict ourselves to the Bill and the amendments to it?

[The First Deputy Chairman]

Order. That is much wider than what we are discussing today.

[Chris Leslie]

Those who require insurance, on which the amendments would seek a report from the Treasury in order to reveal the impact not just on the Exchequer, but on individuals, will also be concerned about their contents insurance and buildings insurance, which are often where the cost of picking up reparations after flooding occur. It would be wrong of me not to pay tribute to my hon. Friend for his work before he entered Parliament.

[Geraint Davies]

On that specific point about the incidence of such insurance deals, the reality is that, as climate change progresses, the people who are caught by such costs will often be the poorest, who are closer to high flood-risk areas because of bad planning and the like. Does my hon. Friend agree that the impact of the measure will be increasingly regressive?

[Chris Leslie]

Absolutely. My right hon. Friend the shadow Chief Secretary to the Treasury made that point very forcefully earlier. The regressive impact of insurance premium tax is not widely understood, but, when our poorest constituents take out insurance, they are hit disproportionately hard, and unfortunately many of them will decide to go without that insurance altogether.

[Sammy Wilson (East Antrim) (DUP)]

I appreciate the hon. Gentleman’s point about a 1% rise being regressive, but, on his earlier point about it putting people off buying insurance, the average household insurance policy is £400 and a 1% increase will add £4 to the total cost. If someone who seriously wishes to insure their home is prepared to pay £400, is he really suggesting that an extra £4 will produce the result to which he referred, namely that many people will no longer purchase insurance?

[Chris Leslie]

The hon. Gentleman makes a reasonable point, and he is right that at that level the disincentive might well be marginal. However, my point is that there is a slippery slope, and, with 1% here and 1% there, before we know it we have 2% or more—3%, or even 4%. My right hon. Friend the shadow Chief Secretary asked about the potential risk of aligning our insurance premium tax arrangements with those of the wider European Union, and, if they are at 22% in Italy or wherever, there is a risk of a serious disincentive.

So, I regard this debate as a stitch in time to put down a marker and say to the Government, “Don’t chance it too far. This may well feel like a small amount of money. but £10 on a motor insurance policy of £1,000 is quite an additional burden and not to be sniffed at.” If the Government continued to ratchet up the costs in that way, that would be regrettable. Some of the amendments before us are very sensible, and, in asking for a report from the Treasury, I also urge it to consider in that document the merits of a requirement on insurers to advertise more prominently the yield from insurance premium tax and the rate of tax that customers pay, because it is exceptionally important that our constituents understand why they are asked to pay so much.

When I consulted the Association of British Insurers about that, its representatives said that they would welcome more information on policy documentation and be more than happy to work with the Treasury on those matters. If the amendment is carried, and there are good arguments for doing so, I hope that the Minister will consider that point seriously.

The impact on travel insurance will be even greater, given the costs for many people who travel abroad on, perhaps, their holidays. If those people are my constituents, they will often do so for one week a year, if that. However, all travellers are encouraged to take out travel insurance for such trips, and the rate is currently 17.5%, but it will go up by 2.5 percentage points to 20%, which is a significant amount of money, so, if we discourage our constituents from taking out insurance on their holidays or travel, there will again be consequences.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend agree that the measure will also have an effect on the wider economy? For example, Newcastle airport in the north-east is a huge economic driver, and East Midlands airport, near my hon. Friend’s constituency, is a huge employer. The measure could have an impact on the business of those two airports—and many others.

[Chris Leslie]

There will be consequences if, because of the extra cost of a family holiday, our constituents are disincentivised from going abroad or travelling. The Chancellor of the Exchequer’s imposition of a holiday tax is something that I hope many travel pages in the Sunday newspapers and supplements will focus on, perhaps by modelling the costs for a typical family. About £400 million of travel insurance business is carried out in this country each year, and that accounts for a significant part of not only the insurance industry, but the economy more generally.

[Mr Bone]

I am being won over by the hon. Gentleman’s speech. He argues very strongly against tax rises, and he has won me over on that. Indeed, I should be happy to vote against those increases, but, given the problem with the deficit, can he suggest some other public expenditure savings to make up for them?

[Chris Leslie]

That is a reasonable point, but I should not want to stray beyond the terms of the amendment, suffice it to say that the hon. Gentleman asks a reasonable question, because if we agree to the amendments we might be forgoing revenue to the Exchequer. My view, which he may have heard before but I am happy to share with him, is that the banks should not gain £400 million cash-back from the corporation tax reduction that they will enjoy.

[The First Deputy Chairman]

Order.

[Chris Leslie]

Mr Evans, I felt an obligation to help the hon. Gentleman and hoped that, with that short interjection, you would indulge me.

To return to my general point, insurance is not only a public good, but a necessity for many of our constituents. Our constituents also often make the choice to take out insurance. Although I would not say that all insurance policies are good value for money and although we want to see more competition, I feel uncomfortable about the constant ratcheting up of the costs to our constituents of compulsory insurance, particularly motor insurance.

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[Geraint Davies]

Will my hon. Friend give way?

[Chris Leslie]

I would like to make some progress, but yes, I shall give way.

[Geraint Davies]

My hon. Friend mentioned the issue of compulsion and rates. Does he agree that there is a case to be made for keeping the “holiday tax”, as he put it, lower, and paying for that by making it compulsory? One could argue that it is irresponsible for people to go on holiday without insurance and end up with all sorts of problems.

[Chris Leslie]

I hear what my hon. Friend says, but I am reluctant to extend compulsion in that regard. We should certainly encourage people to take out travel insurance and inform them of what might befall them should they not do so—they could be stranded abroad or find themselves without adequate medical or health cover, for example. I do not know whether hon. Members always remember to fill in their E111 forms when they travel to other countries in the European Union, but our constituents often do not. They can find themselves in significant jeopardy. In those circumstances, travel insurance is very useful.

Many people are employed in the insurance industry, and if there are disincentives against our constituents’ taking out decent, high-quality policies there will be an impact on the insurance sector and the financial services sector more widely. The financial services sector, including insurance, is one of the great industries of our country. It has been subject to a lot of criticism, and we can talk about that on another occasion, but it is important that we should not take steps that harm the products that we consume in this country and sell worldwide.

I conclude by reiterating to the Treasury the importance of assessing the impact of the insurance premium tax increase on our constituents and the Revenue. We do not know from the Red Book how the £455 million annual yield precisely breaks down between pensioners, young people and beyond. My right hon. Friend the shadow Chief Secretary says that the impact on pensioners will be significant and I take his word for that. That issue is a great worry. These are serious matters and I hope that the Treasury and other hon. Members will hear some of the points shared across both sides of the Chamber today.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

We have had a wide-ranging debate on clause 4 and the amendments tabled to it; I am sure, Mr Evans, that you want to hear its conclusion. I was grateful to hear the contribution made by my hon. Friend the Member for Wellingborough (Mr Bone), who highlighted the freedom given to Government Back Benchers in Committee debates. I hope that my remarks will persuade my hon. Friends not to make full use of that latitude. We shall see.

The amendments are concerned with the general impact of the rise in the standard rate of insurance premium tax, particularly in respect of its impact on personal health insurance and the motor industry. I will come to those issues in detail in due course. Before I do so, I propose to set before the Committee the reasons behind the course that we have chosen.

Reducing the deficit and ensuring economic recovery are the most urgent issues facing the UK and they are the Government’s top priority. In the words of the shadow Business Secretary, it is no good wishing the deficit away; it is only by acting quickly to tackle the deficit and restore confidence in the public finances that we will achieve economic growth. That has meant that we have had to take many tough decisions to ensure that everybody makes a fair contribution. Part of that contribution will come from increases to the standard and higher rates of IPT.

Clause 4 legislates for that by increasing the standard rate of IPT from 5% to 6% and the higher rate of IPT from 17.5% to 20%, both with effect from 4 January 2011. IPT is, of course, a tax on insurers, not on their customers; 80% of all the insurance sold in the UK is exempt from IPT. All long-term insurance, such as life insurance and pensions, is exempt from IPT. My hon. Friend the Member for Christchurch (Mr Chope) mentioned Conservative party policy on long-term insurance. If he is a little patient, I am sure that my right hon. and hon. Friends at the Department of Health will say more on the subject. I just underline the point that IPT is not levied on long-term insurance.

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[Mr Gauke]

As a Government—I am sure that this is a principle that my hon. Friend would support—we believe in giving people choice, and that is what we will do. We have set out our policies in that context, and I am merely underlining this Government’s commitment to the national health service.

The combined effect of the amendments tabled by my hon. Friend the Member for Christchurch would be to slow down fiscal consolidation. Through the Budget and this particular measure, the Government are trying to get our deficit under control, and slowing it down would not be an appropriate step.

[Chris Leslie]

Specifically in terms of the contribution to fiscal consolidation, how much of the yield from the increase in IPT will come from the motorist via car insurance?

[Mr Gauke]

If I may, I will provide a little more information breaking down the numbers in a moment or so, and we shall see whether that is specific enough for the hon. Gentleman.

Exempting motor insurance from the IPT rise would reduce revenue by £160 million a year, and exempting medical insurance would reduce it by a further £40 million. Taken together, those figures total £200 million—nearly £1 billion over the lifetime of the Parliament. That would leave us with quite a shortfall, and a couple of options. First, we could raise £1 billion from elsewhere. We have to be open about the fact that the purpose of the IPT rise is to raise revenue, and if we were to look to raise the outstanding £1 billion through IPT, that would mean increasing very considerably the rate of tax on the remaining classes of insurance. For reasons that I will set out, we do not think that that is the right way to go. The second option is to leave ourselves with £1 billion outstanding, which would leave us further away from plugging the deficit, with all the risks that that entails. We are certain that that is not the right way to go.

It has always been a principle of IPT that the tax applies to a relatively broad base of general insurance, with few exceptions. That broad base allows us to keep the standard rate of the tax low by international standards. Even at the new rate of 6%, the UK’s standard rate of IPT is far lower than in, say, Germany, where it is 18% for property and 19% for motor insurance, or France, where it is 9% for property and 18% for motor insurance. Narrowing the base of the tax through specific exemptions of the type that my hon. Friend the Member for Christchurch suggests would put that low rate at risk.

To respond to the perfectly fair question of the shadow Chief Secretary, the fact that we have announced the increase should not be taken as a signal that we intend to harmonise tax levels with those elsewhere. To quote what the shadow Chancellor used to say, we always keep taxes under review and it would be daft to rule things out, but this increase should not be taken as a signal of an ongoing programme of further increases.

We do not take any pleasure in introducing this tax rise, even though the reasons for it are clear. However, by keeping a broad base of tax within general insurance, we are able to raise revenue so as to cut the deficit, while keeping the increases at a level that will not have any significant impact on the number of people buying insurance.

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The tax treatment allows tax-free saving and tax-free investment growth, as well as the taking of a tax-free lump sum on retirement of up to 25% of the fund. There are also valuable tax incentives for employer contributions to pension saving, which is a recognition—long supported by Members in all parts of the House—that it is more efficient for pensions to be provided on a collective rather than an individual basis. The favourable tax treatment is also a recognition in wider society that pension saving involves a deferral of current income, which is always difficult to maintain in what is a consumer-oriented society, where all the temptations tend towards instant rather than delayed gratification.

[Chris Leslie]

indicated assent.

[Ms Eagle]

My hon. Friend responds to my mention of instant gratification, but obviously it is in all our interests as a society to recognise that there is merit in assisting people to save for their retirement, so that they can avoid being reliant on benefits in their old age. As a result of the welcome increases in longevity, which have been a feature of our success as a society since the war, the average period of retirement is becoming longer and longer. Indeed, history recalls that when old-age pensions were first created 100 years ago, the life expectancy of those due to access them was a mere one year after they had been lucky enough to qualify. Clearly, by the time pension saving and old-age pensions became more widespread after the second world war, the time had gone up considerably to seven or eight years. It is now 20-odd years for men and—gratifyingly for females—even longer for women.

That shows that there are issues about longevity in society and about how to adapt our pensions arrangements to recognise that we live in what is often referred to as “an ageing society”. I believe that it is a great triumph of our organisation of society. Although it presents us with some difficult issues of policy and affordability, it should not be seen or ever portrayed as a problem; nor should the fact that these days many more pensioners reach retirement age and live longer be seen as representing some kind of burden on our society. After all, we all aspire—as I am sure you do, Mr Hoyle—to reaching retirement age and enjoying an extremely happy, long and hopefully prosperous retirement. That is what we are dealing with when we tackle the issue of pension tax relief.

I was pointing out that pension tax relief is more generous than the relief in many other areas of saving. That is because there are great benefits in encouraging people to save for their own pension, despite the fact that they are putting money away to which they often cannot gain access for many years; and also because it is more effectively and efficiently done if it can be done collectively. That is why Government incentives, in the form of tax reliefs, have always featured in the system.

This form of tax relief is often referred to as EET. This is not a stuttering, Steven Spielberg sci-fi film; it stands for exempt, exempt, taxed. That means that as savings are put away from income, they are exempt from tax. Any investment growth that comes from investment in those funds is also exempt from tax—that is the second E. The T, of course, is the thing that many people worry about—the fact that as these savings are taken as an income stream when retirement happens, taxation applies again at that stage.

I doubt whether any Member on either side of the House would quibble with the very generous tax incentives put in place over many years by Governments of all hues, colours and sorts—whether they be coalitions or otherwise—to privilege such tax savings. However, as that has developed, certain features have brought about unforeseen consequences and have not proved to be in the best interests of fairness or equity.

To establish the size of the issue and to put into perspective the amounts of money that we are dealing with under this clause, let me reveal—although I am sure that many Members will already know—that the gross annual cost of pension tax relief for the financial year 2008-09 was £28.4 billion, which at a full 2% of gross domestic product is a not insubstantial amount. Net of the tax on pension income—the T part of EET—and also of the national insurance contribution relief for employers, which are also granted by the Treasury, the figure was £18.9 billion. Therefore, the net cost of that tax relief for pension savings is close to £19 billion. Again, that is not an insubstantial amount of money or revenue forgone by the Treasury.

Another feature of the net figure is how it has been growing in the past few years, having doubled since 1998-99. From being reasonably stable, it has gone up very quickly in a relatively short space of time when we think about life spans and the development of pensions policy in this area. That change has been accompanied by a change in the distribution of the beneficiaries of the tax relief, so there was a very strong case for taking action to put it on a more sustainable and fairer footing, and that is what we were doing with the tax law that clause 5 seeks to repeal by order.

It is a feature of the system, which I am not sure could be avoided without putting huge restrictions on it, that tax relief for pension savings is granted at a marginal rate. By definition, that means that it is more valuable for higher rate taxpayers than for basic rate taxpayers. Analysis has shown that the relief was increasingly benefiting those on the very highest incomes rather than just those on higher rates. So, paradoxically, over time, the very reasonable and logical policy of granting tax exemptions on savings for pensions meant that the incentive to save for a pension was being provided, at a cost to all taxpayers, to those who needed it the least because they were the most well-off. That is the definition of “regressive” in terms of how tax relief might hit. The fact that the system was becoming even more distorted, benefiting those in the very top income brackets, was illustrated by a distributional analysis of the benefits, which revealed that higher rate taxpayers received 65% of the relief but constituted only 19% of pensions savers.

The real distortions were at the very, very top, as those on the very highest incomes were benefiting even more disproportionately. Analysis shows that about 2% of savers currently receive a quarter—25%—of all the tax relief available. I hope that the Minister will agree that that is unjustifiable. It means that if a person is privileged enough to be in the top 2% of earners by income, they are entitled to an average of £20,000 of tax relief per year per person on their pension savings, whereas the average relief available for those who are on the basic rate of tax is just £1,000.

The way in which the relief is granted, its connection to the income tax system—the fact that it is at the marginal rate—and the introduction of the 50p rate for income tax mean that if action were not taken, this massively and already grossly regressive relief would become even more distorted. That is why my right hon. Friend the shadow Chancellor, in the pre-Budget report 2009 and the Budget 2009, decided that action had to be taken to deal with the relief, which had become unsustainable and extremely unfair. It was therefore necessary to have a policy response at the medium and low-earning end of the income scale as well as a policy for the very high end. It is the policy for the very high end that is being repealed in clause 5, but I want to spend a tiny amount of time dealing with the policy at the low and medium end.

The decision to create the national employment savings trust was an essential part of the rebalancing of pension tax reliefs to ensure that they could effectively stretch further down the income distribution. Members will recall that the creation of what is now known as NEST was the outcome of a great deal of work across party lines from 2004 to design a system of pension savings that would deal with the obvious market failure in the private sector of the ability to allow low and medium earners to save in a worthwhile way in a low-cost savings vehicle.

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[Mr Jones]

My hon. Friend raises a good point. Clearly the net beneficiaries will not be in the north-east of England, Northern Ireland or Scotland. They will be those in the south-east of England. The disposable income of those individuals will be a lot greater than that of a lot of our constituents, who will be hit by the VAT increase.

We have seen that give-away, but there is something else in the Budget that I find absolutely amazing. We heard the other night that under the corporation tax proposals, the banks will be given a cash-back of £400 million. The same individuals will no doubt benefit from the proposals that we are currently discussing. We have been hearing the mantras in the past few weeks that there is no alternative and that Labour left the economy in the mess.

[Chris Leslie]

We’re all in it together.

[Mr Jones]

Let us not forget that one. However, the proposal in clause 5 will leave a big black hole in the deficit reduction strategy. The Economic Secretary hinted, “Well, we might not do it, or we might do something different.” I am sorry, but if we are to have a thought-out plan to reduce the deficit, that is not the way to approach the matter. What we need is firm figures that do not make the poorest in society pay, which the proposal clearly will. She needs to explain to the House why neither she nor the Liberal Democrats went into the election saying that they would make this change. A lot of pensioners will find it very difficult to stomach.

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[Geraint Davies]

The Economic Secretary knows that the distributional impact of the proposals is, as I have said, to spread the £3.6 billion burden from the top 2% to 10%. It is as simple as that. She knows that that is the case, and there is no way that she can wriggle out of that political and economic fact. Before the election, there was a promise that million pound estates would avoid inheritance tax—the top 5,000 households. At the last moment, the Chancellor stepped back and said, “Oh no, at such difficult times, we won’t give billions of pounds to the top few thousand households. Don’t worry. Vote Tory.” However, their secret plan was to have a word behind the scenes with their rich mates, telling them, “Don’t worry, we’ll reverse the Labour party’s old plan to make sure that the top 2% pay most.”

[Chris Leslie]

My hon. Friend is making several important points. The clause appears to reinstate an enormous tax relief capability for the wealthiest, yet the Economic Secretary guffaws at questions from Labour Members about taking it away. Surely the Treasury should clarify the position.

[Geraint Davies]

My hon. Friend is right. Only yesterday, he lucidly pointed out that, when we went into the election campaign, the Conservatives were saying, “We won’t help the rich with inheritance tax, and we’ll get those bankers with the bankers levy”, but that the levy of £400 million will be nullified by the corporation tax give-away to the bankers. On top of that, we hear not only that the bankers will not pay a levy because they get corporation tax back, but because of this proposal they will have the £3.6 billion in pension contributions. That is an absolute disgrace.

The Government argue that the measure is both fair and effective. I have already argued that it is clearly not fair and will not labour the point any longer, but is it effective? That the previous scheme was complex has been acknowledged, but the new system is also complex. There is enormous uncertainty within the industry, which is asking how pensions can be accrued in defined benefit schemes, how they will be valued under the proposals, and what will be the impact of the proposal on the provision of such schemes and what will be the impact on basic rate taxpayers. There are also compliance and delivery questions, and all sorts of other questions, and the measure must be delivered within a very tight time frame. We are therefore playing fast and loose with our economy and public finances, and with the confidence of the international community, in order that the Tories can bail out their rich friends. That is quite outrageous.

The Government say that the matter will not be done and dusted immediately, but that the measures give them various regulatory powers to withdraw Labour’s well thought out proposals and to leave a void. Specifically, it is said that there will be a discussion document in the summer of 2010, meaning that there will be a big discussion among the stakeholders on how the Government are going to recover the £3.6 billion that they would have made from the top 2%. The Government say, “We’d better not take that £3.6 billion because we’d be taking it from our friends, but we don’t know how we’re going to recover it, so we’ll have a stakeholder discussion in the summer,” which will presumably take place in the Maldives or somewhere similar.

[Chris Leslie]

Again, the Labour party was trying to close the loopholes for the very richest and to reduce some of the tax give-away for the millionaires. The Minister is asking the House to trust her while she shuffles the rules—that is what clause 5 effectively means—but does my hon. Friend think that the Government, given their track record, can be trusted on this matter?

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[Justine Greening]

A whole range of analyses and impact statements will come out with the legislation. I suspect that, as my hon. Friend the Member for Chelsea and Fulham (Greg Hands) behind me is saying, any work that is done would give an answer that Opposition Members would not like, because it would show that we are no longer going to give basic rate tax relief to people who can afford to pay hundreds of thousands of pounds into a pension pot every year.

Let me address some of the issues that have been raised. I have set out the time frame within which we want to progress towards a better alternative to the current system. We all agree that, for pensions tax relief to remain affordable, we have to limit high levels of tax-privileged pensions saving, but we think that there is a better way of doing it than the one set out by the previous Government. We believe it is important to reduce the annual allowance to prevent people from saving £255,000 a year tax free.

The hon. Member for Wallasey mentioned instances of people suddenly being able to pay a large amount into a pension fund on a one-off basis. She was right to raise that matter, and we shall be looking at options for protecting basic rate taxpayers and supporting any hard cases caused by such one-off spikes in pension accruals. She also asked about the lifetime allowance being changed. We have not ruled that out, but it is obviously a key mechanism that sits alongside the annual allowance. We shall therefore have to look at it in the context of where we end up going with the annual allowance limit. I should say that all this is subject to being able to work with key stakeholders to get something that we believe we can rely on. That is why the provisions will give us the power to repeal that measure, if we can find a better way.

I particularly want to respond to the argument from Labour Members that our proposals would somehow give a tax break to the most well-off people in the country. Let us have a look at some of the figures involved. Of course, the minute I say that, I lose the relevant bit of paper. Ah, here it is. Under the terms of the Finance Act 2010, someone who is contributing £283,000 to their pension fund on an annual basis would have had a tax charge, net of pension relief, of £85,000. Someone making the same contribution to their pension pot under a potential annual allowance level of £35,000 would have a tax charge, net of relief, of £124,000. The reason for that is that they would get 20% tax relief on the income that they would otherwise have paid a much higher rate of tax on. That is why they would pay just under £40,000 a year more under our proposed scheme than they would have done under the previous Government’s arrangements.

I wonder whether those Labour MPs who are so concerned about the impact of tax policy on the better-off people in this country will go through the Lobby today and vote for a measure that means that people who can afford to pay £283,000 a year into their pension pot will pay £40,000 less tax than they would previously have done. I do not know what Labour Members think “good” looks like in relation to taxing better-off people, but I guess I will find out when we have a Division on this amendment shortly.

[Chris Leslie]

The hon. Lady is talking to us as though we were schoolchildren, but she will not publish her proposals. Will she now agree to place in the Library a copy of the table that she has in front of her straight away, or this evening, so that we can all share in this secret plan?

[Justine Greening]

I would have thought that the hon. Gentleman was so intelligent that he could do the maths himself. The calculation is pretty straightforward. It is a bit like doing a tax calculation where someone has an allowance and then a rate, and they apply it to the excess of the allowance that they are paying in extra.

[Justine Greening]

I have no recollection of that, but I will not take up more of the time of the Committee. The last figures that I set out probably spoke louder—

[Chris Leslie]

On a point of order, Mr Amess. Is it in order for the Minister to withhold information to which she has clearly referred in the debate from the rest of the Members engaging in the discussion?

[The Temporary Chair]

That was not a point of order.

Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 13th July 2010 Commons Chamber

[Justine Greening]

One of the reasons why we set up the Office for Budget Responsibility was to ensure far more independent and transparent forecasting in relation to not just exports but all economic indicators. I am sure that over time the OBR will continue to develop that forecasting to make it even more effective. Let us make no mistake: setting up the OBR was a huge step forward in terms not just of transparency, but of robust data on which the public can really rely.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will not our exporters be hurt by the slashing of the capital allowances that went to our manufacturing industries? Is it not a hallmark of the Government’s priorities that they would rather give £400 million cashback to the banks by cutting their corporation tax than support our small and medium-sized enterprises in their export activities?

[Justine Greening]

I am not sure whether the hon. Gentleman has talked to industry about its reaction to the Budget. I think that if he talked to the Institute of Directors, the CBI and the Federation of Small Businesses he would find that they welcome it, because they know it will help them to grow their businesses and grow employment. I only wish that the hon. Gentleman could recognise that and welcome it too.

Finance Bill

Chris Leslie Excerpts

Monday 12th July 2010 Commons Chamber

[John McDonnell]

I was talking about what had been experienced in the past, but we can all sign up to the pious statement that we will achieve as much simplicity as possible. I merely say on the basis of practical experience in the House that, unfortunately, when we have sought simplicity, people have argued for further complexity to tackle the loopholes. However, we will all aim for simplicity, and the onus is on us to try to draft legislation in a way that achieves it.

I welcomed the Minister’s statement about the continuation of, and consultation on, the commitment to the anti-avoidance rule, but I hoped that at some stage a future report from Government would enable us to engage in a wider debate on how we could install in legislation the duty to comply more simply and effectively. As my right hon. Friend the Member for East Ham (Stephen Timms) pointed out, the issue that arises time and again is the ingenious use of devices to avoid the spirit of the law. In other contexts, we draft legislation in such a way that when a device appears it can be seen to be a device, which is patently against the spirit of the legislation and whose effect can therefore be outlawed. I also welcomed the wider debate on the anti-avoidance principle to be installed in legislation.

This has been a helpful debate. I leave the Minister to the savagery of Richard Murphy’s blog: I am sure that Mr Murphy will respond to each of the points that he raised. Let me make this point, however: whether the tax gap is £40 billion or £120 billion, when people out there are experiencing cuts in public services and reductions in their pensions and are having to work for longer, they will expect us to collect those taxes. The subtle distinctions between evasion and avoidance will be lost on them. They will expect the House of Commons to produce legislation ensuring that HMRC is sufficiently staffed and sufficiently resourced to bring in the tax, and to deal with the significant part of the deficit that we have identified in the past few weeks.

On the basis of the assurances that we have had from both Front Benches of co-operative working on this issue, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I beg to move amendment 21, page 1, line 6, at end add—

‘(2) The main rate of corporation tax for financial year 2011 will remain at 28 per cent. on the profits of banking institutions as defined by section 2 of the Banking Act 2009.’.

[The Temporary Chair (Mr David Amess)]

With this it will be convenient to discuss the following:

Amendment 34, page 1, line 6, at end add—

‘(2) Prior to this rate taking effect, the Chancellor will place in the Library of the House of Commons an assessment of the impact of this clause on the banking sector.’.

Amendment 50, page 1, line 6, at end add—

‘(2) This section shall not come into force until the Treasury has laid before the House of Commons as assessment of the impact of this section on—

(a) the banking sector, and

(b) all other sectors to which corporation tax applies.’.

[Chris Leslie]

My amendment is quite simple. It does not seek to alter the rate of corporation tax suggested in the Budget, except in one respect: it should not apply to banks and banking institutions. Surely few issues can highlight the unfairness and injustice of the Government’s Budget more effectively than the suggestion that, of all the sets of institutions that should benefit from more advantageous tax arrangements, the banks should be given such a windfall at such a time.

I was prompted to table the amendment by a flurry of reports that appeared immediately after the Budget statement, suggesting that the banks would be net beneficiaries. Deutsche Bank analysts were reported as saying that the Budget was a “good outcome for banks”, and John-Paul Crutchley, an analyst at UBS, expected that Lloyds and HSBC would benefit by 2012 as a result of, particularly, the cut in corporation tax.

We must look at this measure in the context of the other Budget provisions. While the Finance Bill is, I suppose, substantial to a degree, it addresses only one short set of Budget measures that presumably will be brought before the House in different Bills at different times in the coming year, and it is a shame in a way that we will not get a chance to address this corporation tax measure in that wider context. I do not think any Members are opposed in principle to the banking levy that the Chancellor announced, although many might question whether it is tough and stringent enough.

[Mr Kevan Jones]

Does my hon. Friend agree that this cut will be unfair to small businesses in that while the major banks that got us into the financial mess two years ago will benefit from it, many small and medium-sized businesses will have to pay for it through the cut in the annual investment allowance from 2012?

[Chris Leslie]

Indeed, I think there is a set of unfairness issues that affect not only public services and our constituents, but business to business. Many small businesses will be incredulous at this giveaway to the banks, which are having their corporation tax cut. HSBC’s own banking analysts agreed that they would be better off. One of them was quoted in the media as saying:

“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-Budget.”

Analysts at Redburn Partners said that Lloyds in particular would see a 3% rise in its earnings per share by 2012, especially as corporation tax is planned to be reduced to 24% over time. The measures in this Bill make only a 1% change in that tax from 28% to 27%, but as the years pass the banks’ gains clearly will accrue and become even greater.

It was no coincidence that the share prices of some of our leading banks leapt after the Budget statement, even though, paradoxically, it included a banking levy that they supposedly feared. Lloyds shares gained 2.7% the morning after the Budget, and others were similarly jumping for joy. The Daily Mail—a journal of great repute—reported that a city insider was privately very happy, saying that

“some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly.”

It will be for the Minister to defend this measure of course, and I look forward to hearing him explain why, of all institutions, the banks deserve this windfall at this time.

The interplay between the banking levy and the impact of the corporation tax cuts must be at the heart of our considerations this afternoon, and I am glad that my Front-Bench colleague my right hon. Friend the Member for East Ham (Stephen Timms) and the hon. Member for St Ives (Andrew George) have tabled amendments that also seek to probe that issue. My amendment would have the effect of not passing on the corporation tax cut, and theirs’ would insist that at the very least the Treasury conduct a review of these matters.

My concern remains that the banking levy was set at far too low a rate—starting at 0.04% and rising to the heady heights of 0.07%. I gather that might even be about half the level at which the Americans set their banking levy. The notion that this was all done internationally at the same level is absolutely not the case. For some bizarre reason, the Chancellor really held back. He made great play of this levy in the Budget statement because he knows the general public are angry about the situation the banks have left in this country. They are furious that the banks were the source and cause of many of our national debt problems and the deficit we face today. I am glad that the Government say at page 26 of the Red Book that they will consult on the final details of the banking levy, and I urge the Minister to think carefully about how that levy will play in relation to the corporation tax reduction, because if the banks are gaining from that, it must be possible to ensure that they pay their fair share at some point .

[Matthew Hancock]

Does the hon. Gentleman regret his party’s position before the last election, which was that we should not have a banking levy unless everywhere else in the world signed up to it? Does he therefore applaud the current Government’s leadership in unilaterally putting forward a bank levy?

[Chris Leslie]

I may be wrong, but it is my recollection that a number of countries simultaneously came out with their banking levy arrangements, on the continent as well as America, and it was, of course, the natural point at which to introduce a banking levy. It is a matter of nuance whether we get a collection of large industrial countries to act simultaneously or we act on our own as a country, but I think it is necessary to have a banking levy that recoups all the payments that the banks took from our taxpayers.

[Mr Kevan Jones]

My hon. Friend refers to page 26 of the Red Book, which states at paragraph 1.63 that

“the Government will introduce a levy based on banks’ balance sheets from 1 January 2011, intended to encourage banks to move to less risky funding profiles.”

The paragraph concludes by saying:

“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”

Does my hon. Friend agree that that actually supports his amendment, in the sense that we should not take decisions on the banks’ corporation tax rates before this levy is introduced?

[Chris Leslie]

I could not agree more. It would not be in order to stray too far from the topic of corporation tax, but it is important that we see this change in context. It appears that the Chancellor press-released the fact that he was taking, in some brave measure, an amount of money from the banks through the banking levy, but failed to publicise that he was also giving that back with the other hand through the reduction in the corporation tax rate.

We are talking about significant and serious amounts of money, and the Minister ought not to be so careless with this revenue as it is needed to repair our deficit and to protect our public services. I am very surprised that the Treasury did not take action to plug this loss of revenue, but chose instead to apply the reduction in corporation tax across the board.

We must not forget that the banks have already benefited from an enormous amount of largesse from the taxpayer more widely. The Royal Bank of Scotland and Lloyds Banking Group had £76 billion of their shares bought by the taxpayer. The Bank of England had to be indemnified against losses incurred in providing more than £200 billion of liquidity support. There have been guarantees of up to £250 billion of wholesale borrowing by the banks to strengthen liquidity. Also, £40 billion of loans and other funds were made to Bradford & Bingley and the Financial Services Compensation Scheme. There was insurance cover of more than £280 billion for bank assets as well. These changes were not unnecessary at the time; they were absolutely vital as a way of ensuring that our banking system—our credit system—did not collapse entirely.

Had the coalition parties been in power at that time they would have had to fulfil exactly those same commitments, assurances and undertakings to make sure that our banking system did not collapse. That is why it infuriates so many members of the public to hear Members on the Government Benches claiming that that was a partisan cause or that our spending such a large share of our national income on public services is the real cause of our deficit, when in fact responsibility lies squarely at the feet of our banking sector.

[Mr Love]

May I correct something my hon. Friend has said? Most of the measures the previous Government introduced to safeguard the financial system were in fact opposed at the time by the Conservative party, although it appears to have changed its mind. I also want to ask about the public concerns about the widespread reports from banking spokespersons in respect of this supposed levy. They are suggesting that there will be an opportunity during the consultation to weaken the legislation and reduce the amount of tax they pay. Does my hon. Friend deprecate such projects, and will he try to ensure that the Government stand firm against any such thing?

[Chris Leslie]

That is entirely so. Those with significant financial wherewithal—the corporate advisers, the consultants, the accountants—are always exceptionally adept at lobbying Ministers and making their points in their detailed ways, often with the general public entirely unaware that such measures are being put in place to their advantage. Clearly, the banks have been very aggressive in lobbying for these changes. It appears they may well have been successful in watering down the banking levy, while at the same time gaining benefit from this corporation tax change.

The Minister may argue, “Ah well, some of our banks made very significant losses in previous financial years, and because of the complexities of our corporation tax law, companies have certain rights to recoup some of those losses from the corporation tax they paid previously.” In my view, the banks should also be excluded from making such claims—or at least, their ability to do so should be lessened. I was unable to frame my amendment in that way—that takes a certain level of drafting—but we must ensure that the Treasury does not allow the exceptionally clever and highly paid advisers whom the banks can employ to find their way round the provisions and take even more money from the taxpayer.

[Mr Kevan Jones]

Reference has already been made to Barclays, whose full-year profits increased, I understand, by 92% in 2009 to stand at some £11.6 billion. Does my hon. Friend agree that Barclays will also gain from what is now proposed?

[Chris Leslie]

That is especially true over the longer term, and, as I was saying, although clause 1 refers only to the financial year 2011-12, the Government clearly intend to go even further even faster.

There may well be a case for saying that all companies need to be treated the same and that it would be wrong to discriminate against a particular class, and the Minister may argue that there are other sets of corporations—large oil companies, the privatised utilities and so on—that the public would frown on if they regained a corporation tax benefit, for example. In my view, the public are getting wise to the cause of the reduction in public spending, some of which, naturally, is driven by Conservative party ideology. However, the reductions that are driven by the existence of the deficit are largely the result of the costs incurred in bailing out the banks and the subsequent recession. Because of the lack of credit available in the wider economy, we had fewer tax receipts. In fact, the real story of the deficit is not that we are spending so much on public services, but that tax receipts are considerably lower.

[Ian Lucas (Wrexham) (Lab)]

Is my hon. Friend as confused as I am by the Government’s trumpeted aim of rebalancing the economy, while at the same time they introduce a corporation tax cut such as this, which favours companies across the board—from retail to banking—but not manufacturing? In fact, the capital allowances scheme actually penalises manufacturing companies. Does not the generality of the Government’s approach contradict their own headlines?

[Chris Leslie]

Indeed. This is a very perplexing set of Budget measures and if we have the chance to debate clause 1 stand part, there are a number of other questions we might want to probe the Minister on. For instance, why, inexplicably, are the reductions in the “small profits rate” of corporation tax not in the Bill? It seems that the Government are very adept at putting at the head of the queue the large institutions that will bleat and shout the loudest. It is incredible to me that the Government are giving priority to those institutions, which should be more contrite and should contribute a fair share. It is the concept of a fair share that eludes both the banks and the Government.

[Andrea Leadsom (South Northamptonshire) (Con)]

Is the hon. Gentleman confusing a healthy banking sector that can contribute to the regeneration of a healthy economy with the issue of banks paying bonuses? I do not see what reducing the headline rate of tax that banks pay, which inevitably leads to healthier balance sheets and greater ability to lend to companies and is good for our economy, has to do with what I think he is talking about, which is the banks’ payments to themselves. I see those two issues as being very different. Perhaps he can explain.

[Chris Leslie]

I am grateful to the hon. Lady who, I am sure, would have wanted to declare an interest had she been in her previous guise. I understand that she was previously employed in the banking industry, although I may be wrong and I do not want to disparage her in any way. However, it is important to know.

[Andrea Leadsom]

It was 10 years ago.

[Chris Leslie]

I just wanted to place the hon. Lady’s comments in their particular context.

It is certainly true that the general public have a distaste for the excessive bonuses and remuneration of those in the banking industry, but such remuneration would not be possible were it not for the high profit rates that the banks were able to post and report on so many occasions. We are indeed all shareholders in many ways—either directly, or indirectly through our pension funds or as taxpayers—and Members on both sides of the House will hope that, over time, the banks will be returned to some level of normalcy. However, necessarily, they must not, as institutions, evade—or avoid; I want to use the correct parlance—paying their fair share.

[Mr Kevan Jones]

It is not just the general public who feel that way. On 20 April 2010, the now Deputy Prime Minister—I think he and his party are still one and the same—called bankers “reckless and greedy”, saying that they have been allowed to hold a gun to our heads.

[Chris Leslie]

My hon. Friend is right. Before the general election, there was a lot of tough talk and rhetoric from both Conservatives and Liberal Democrats. Indeed, The Sun—a journal of great repute—said on 20 March that the then Leader of the Opposition

“singled out the banking industry as one example of ‘vested interests’ he is determined to confront and who he accuses Prime Minister Gordon Brown of failing to stand up to. ‘We had the biggest bank bail-out in the world. We can’t just carry on as if nothing happened’”.

I am afraid we may well be carrying on as if nothing had happened, especially if the banking levy is offset by this giveaway in corporation tax.

[Mr Jones]

Let me add another example of the feeding frenzy. In December 2008, the current Prime Minister told Channel 4 that he wanted to see more senior bankers in prison.

[Chris Leslie]

I would not want to set the hare running across the City of London that the long arm of the law is necessarily about to grab them on the shoulder, but I understand the frustration and anger of the British public more widely, and all politicians in this House should be angry. While it is fun and games for the Conservatives and Liberal Democrats constantly to say, “Ah well, it was the Labour party that left us in this predicament”, they know very well that the root cause was the greed and excess of the banking sector, which ought to pay its fair share.

[Andrea Leadsom]

The banking sector is far from being given a free ride by this Government. We are absolutely not going to allow it to get away with past transgressions—far from it. In fact, it is this Government who are going to restore banking supervision and lender-of-last-resort powers to the Bank of England. The tripartite system that Labour put in place, and which led to some of the failings of the banking system, was a key mistake. This Government are not going to ignore those issues. We also have a commission to look at competition, which is key, because we have to re-establish fair competition in our banking system and get rid of the tendency towards ever larger and more consolidated banks. I agree, in part, with the hon. Gentleman, in that we have to take the banking system seriously, we have to improve it and we absolutely have to make it more competitive. However, I do not agree that we should consider a differential rate of tax, as that is simply uncompetitive.

[Chris Leslie]

The hon. Lady makes her case. We can all, in hindsight, say that regulatory improvements should clearly have been made. The British Government could claim that work should have been done to ensure that that was the case in America, in every country in Europe and all the around the world. It is absolutely true to say that the whole worldwide banking system ought to have been more closely regulated, but that was the first time I have heard a Conservative Member defend the reduction in the corporation tax rate—that is the specific measure that we are discussing. There may be a need to debate the regulatory changes that should apply to the financial services industry—I look forward to those proposals being made—but I still do not understand her argument about anti-competitiveness. It is important to hear why the Government believe that the banks deserve this particular cut.

[Mr Kevan Jones]

The hon. Member for South Northamptonshire (Andrea Leadsom) has just said that we should not have a differential rate of tax, but may I again cite paragraph 1.63 on page 26 of the Red Book, which comments on the introduction of the banking levy? Its final sentence says:

“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”

Is that not exactly what we are going to see here?

[Chris Leslie]

Quite, and this is important. We could send a signal from this House that we, as politicians and representatives of the general public, believe that that particular industry has to pay back the cost it is has left upon the shoulders of the general public. Is it not always the case that the general public—the ordinary working people—have to dig us out of the hole created by those affluent and comfortable individuals who work in the banking system?

[Clive Efford]

I am grateful to my hon. Friend, because his probing is uncovering who is winning the arguments on the Government Benches. The Liberal Democrats went into the election calling for a 10% levy on banks, but the outcome is that what has been raised in the levy has more than been compensated for by the corporation tax cuts. We are seeing who is winning the arguments on the Government Benches on making the banks pay their fair share.

[Chris Leslie]

That is the case, and we have seen the glee with which the banking industry reacted after the Budget to this puny banking levy of less than 0.1% on the banks’ profit and asset base.

[Chris Heaton-Harris (Daventry) (Con)]

A few moments ago, you were talking about the banking industry that had received the “largesse” of the taxpayer, but your amendment deals with the whole banking industry, which includes those banks that did not come to the Exchequer asking for a bail-out. How do you differentiate between the two? Or are you quite happy just to nail the whole thing?

[Chris Heaton-Harris]

I apologise, Mr Amess.

[Chris Leslie]

The hon. Gentleman makes a fair point. I have tried to define “banking institutions” by referring to the Banking Act 2009. I believe that I would thus exclude the building societies and other more mutual, co-operative institutions that I would not regard as being as culpable as the plc-based financial institutions. Irrespective of whether a particular bank received a direct sum from the taxpayer, all those banking institutions benefited from the implicit and implied safety net that the taxpayer provided. Were it not for that underwritten implicit guarantee, banks such as Barclays and others would have been in significant trouble. They may not have taken the handout themselves, but had the markets not felt that the Government of the day were prepared to act were they so requested or had it been necessary to do so, all those banking institutions would have been in an entirely different position.

[Ian Lucas]

I commend my hon. Friend’s response, because he has just said exactly what I was going to say about the fact that the whole sector, including those organisations that did not receive direct investment from government, benefited from the decisive action taken by the then Labour Government, which, I repeat, was vociferously opposed by the Conservative party.

[Chris Leslie]

That is absolutely the case, and it perhaps betrays the enlightenment of Government Members on this particular issue. Each and every one of them who votes against my amendment, or even against the other amendments on the Order Paper, will need to go back to their constituents tonight and explain why they feel that the banking institutions deserve this handout. This is an incredibly important point and it is very useful to have the chance to debate it.

[Mr Edward Timpson (Crewe and Nantwich) (Con)]

I have been considering the hon. Gentleman’s amendment carefully and listening to what he has had to say. What I really need to hear from him is whether he has assessed its impact on the competitiveness of banking institutions in this country and on this country’s competitiveness in terms of attracting banking institutions to the UK to do their business? Without such an assessment it is difficult to know whether his amendment is going to do what I hope it would do.

[Chris Leslie]

I am delighted that that hon. Gentleman is thinking about supporting the amendment. That is incredibly important and a good step forward. I genuinely welcome his support this evening, because this could be a close-run thing. I have made an assessment, as far as I can as a humble Back Bencher. My assessment is that there are hundreds of millions of pounds at stake here that the banks could be gaining. However, I also support the amendments grouped together under this clause. We need the Treasury to undertake an urgent assessment. If the Minister says that he accepts the principle of my amendment but that he wants to do more work on it to get the details right, I would, like him, be happy to consider my position on pressing this amendment.

[Matthew Hancock]

Does the hon. Gentleman have any evidence to suggest that the reduction in corporation tax on banks would offset the £2.5 billion to be raised by the bank levy?

[Chris Leslie]

Yes I do, and at the outset of my comments, I quoted a series of highly professional and well-respected analysts from across the City of London. They were saying that this was a “good outcome”, that there would be “a feeling of glee” about the Budget measures, and that they expected

“most domestically-orientated banks…to be better off after four years”.

It is important to remember that the £2.5 billion supposedly gained from the banking levy is obtained only as it progresses to years four or five. At the outset, it generates an exceptionally small amount of revenue—I believe the figure is less than £1 billion.

[Matthew Hancock]

Can the hon. Gentleman supply any evidence that the corporation tax cut is larger than the £2.5 billion to be raised by the bank levy, because none of the things that he read out was evidence of that?

[Chris Leslie]

If some analysts, who on the secondary evidence before me are saying publicly that they believe that the corporation tax—

[Mr Kevan Jones]

Cashback.

[Chris Leslie]

If they are saying that the corporation tax cashback, as my hon. Friend says, will offset the levy, perhaps by less than the banking levy or perhaps by more, then I think this would be wrong. It sounds as though the hon. Member for West Suffolk (Matthew Hancock) is defending the cashback arrangement that he wants to implement—[Interruption.] The hon. Gentleman says he is in favour of cutting the corporation tax rate for the banks. Government Members will vote that way. I am incredulous about that.

[Mr Jones]

Does my hon. Friend agree that that is completely at odds with the rhetoric we heard from both the Liberal Democrats and the Conservatives in the lead-up to the election? I hasten to add that the Conservatives went very quiet the nearer we got to election day.

[Chris Leslie]

Indeed. I cannot keep track of the turns and U-turns, with so many permutations, that the Government go through or of the chamaeleon-like arrangements of some hon. Members. There are honourable ladies and gentlemen in all parties—even in the parties opposite—and I appeal to them to consider the amendments carefully. These are incredibly important suggestions. I have not yet heard a case in the interventions—except, perhaps, for the competitiveness argument, which I shall discuss in a moment—for why there should be a corporation tax windfall, this boon for our large banks. Perhaps I shall hear one from the hon. Lady.

[Andrea Leadsom]

I want to clarify. It is to all our benefit to have a healthy financial services sector. Obviously, all parties agreed, when we had the financial crisis, that we simply could not afford to see our banking system go into meltdown. There is no doubt that that is precisely what would have happened. Nevertheless, through the banking levy the Government are seeking to make the banks compensate the taxpayer for the undoubted support that they received. If there were a reduction in corporation tax alone with no offsetting bank levy, of course the Opposition could say that the banks were getting a free ride. However, the existence of a bank levy means that the banks are paying compensation to taxpayers for their largesse while at the same time ensuring that we retain a highly competitive financial services sector that can encourage and help our economy to recover.

[Chris Leslie]

I am interested in the hon. Lady’s arguments. She is saying that it would be wrong for the banks to receive a corporation tax cut—that is an important concession—but that it is all right because they are paying the banking levy. As I reckon it, that puts them right back to the standstill that they were at in the first place. In other words, they would not be paying any more and there would be no reparations, as I see it, for the public at large. They would simply be standing still. It beggars belief that the Government, having talked tough before the election, are now going to give a free ride to the banks and offset some of the costs of the banking levy.

The hon. Lady mentioned earlier that there is, of course, the Government’s independent commission on banking. I understand that the Secretary of State for Business, Innovation and Skills is a promoter of it and I would be interested to hear his views on whether we should give a corporation tax cut to the banks. He has gone from saint to axeman in a matter of weeks, but it is the impact on public services that we are worried about most of all.

As I was saying, it is the unfairness of this measure that strikes home most of all. People who are in a comfortable position are lecturing the world about the cuts to our public services that are needed. What really sticks in the craw is the statement, “We are all in it together”, which hon. Members will have heard. Well, that is not the case for the banks. They are not in it with the rest of us.

It reminds me a little of the polite and well-spoken cat-burglar who sneaks in to one’s home as a thief in the night and tries to purloin all sorts of goods and chattels but, when caught red-handed, explains, “No, I’m not stealing from you. I’m just rearranging the furniture and decluttering the house.” It is a grab of the worst possible kind—a grab on the public services on which the poorest in our community rely. The revenue from this measure and from reducing the corporation tax on the banks is needed by our vital public services. I hope that the Treasury will take the amendment seriously. The banks have not earned the right to this windfall. They do not deserve it and I commend the amendment to the Committee.

[Vernon Coaker (Gedling) (Lab)]

On a point of order, Mr Amess. Has the Secretary of State for Education given you any indication that he wishes to come to the Chamber to explain some of the errors that have already come to light in his fifth list? Additionally, during questions this afternoon, the Secretary of State claimed that one individual had received more than £1 million in consultancy fees. The Department for Education has now admitted that that was £1.35 million of consultancy fees paid to KPMG as a whole over three years. Do you not think that the Secretary of State should be coming to this Chamber and have you had any word from him that he wishes to do so?

--- Later in debate ---

[Mr Kevan Jones]

It is a pleasure to follow the hon. Member for St Ives (Andrew George), who has become a rather lonely figure on the Government Benches. Last week, he was the only Liberal Democrat who was not defending the indefensible, for which I pay him credit. At least he is prepared to come to the Chamber and argue against the measures in the Budget that will affect his very poor community in Cornwall, unlike some of his colleagues, who make comments in the press, but are absent from debates on the Finance Bill. I hope that on at least one or two occasions he will join us in the Lobby to stop the effects of the measure on his constituents and mine, although I know that he feels uncomfortable about voting against the coalition.

In 2008, in the run-up to the general election, bashing the bankers was something that everyone wanted to do. It is strange that we now have a Finance Bill that will reward them. There has been a change in the past few months from the stance that the Deputy Prime Minister adopted on 20 April, when he described bankers as “reckless and greedy” and holding

“a gun to the head”

of the country.

I support the amendment tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) and by my right hon. Friend the Member for East Ham (Stephen Timms), and the amendment tabled by the hon. Member for St Ives. I wish to deal with the effect on other sectors, which that amendment raises. We have discussed the banking sector a great deal, but it is important to look at other sectors, too. There has been a feeding frenzy, which suggested more or less that the previous Government got things wrong, and that we should be penalising the banking sector. That view was reinforced by the Prime Minister himself who, when he was in opposition, said on Channel 4 in December 2008 that

“more senior bankers should be sent to prison.”

On another occasion, he should that they should do voluntary work rather than earn large bonuses in the City. The Conservative party went very quiet at the election, possibly because, as the Deputy Prime Minister said—and I agree with him—it is

“completely in hock to the City”.

We have seen that position defended tonight.

A number of banks have clearly made huge profits. Barclays, as has been mentioned, had a 92% increase in profits in 2009, and stand at £11.6 billion. The Royal Bank of Scotland—remember that?—paid its investment bankers £1.3 billion in bonuses, despite making just £1 billion in profit. Lloyds has made a profit of up to £1 billion. The proposals in the Finance Bill to reduce corporation tax rewards the banks for the mess they got us into, and do not acknowledge the fact that the individuals in question have been carrying on regardless, even though, as several hon. Members have said, the people who have suffered will have their services cut. The members of the public who are the victims are somehow to blame for the financial mess that we are in.

I do not understand how—well, I can, because they are called Conservatives—in the lead-up to the election, people can speak tough words against the banking sector, but one of the first things they do is to reduce corporation tax and reward the individuals who got us into the mess in the first place. Those same Conservatives—this was raised by my hon. Friend the Member for Nottingham East—opposed all the measures that we took not only to ensure that the banking sector did not collapse but to protect the British economy.

[Chris Leslie]

My hon. Friend is making an extremely strong case for the amendments. Is it not the case that the Government absolutely have to try their best to pin the deficit on the Labour party, rather than, correctly, on the banking sector? If they took the latter course of action, they would have to increase the banking levy and would not make these changes to corporation tax. They are clearly not prepared to see justice done to those truly responsible for the situation we are in.

[Mr Jones]

That is true. The Government’s drive to reduce public spending has very little to do with reducing the deficit. It is more an ideological move to reduce the size of the state. Unfortunately, like a boa constrictor, they have wrapped themselves round the Liberal Democrats, and will slowly squeeze the life out of them in the coming weeks, months and years. That is dawning on the hon. Member for St Ives, who does not want to be the mouse that gets squeezed at the end of the day. Let us hope that he will escape the clutches of the boa constrictor, which is slowly strangling the lifeblood from the modern Liberal Democrat party. I should not be too sympathetic to the Liberal Democrats, however, because I have spent a lifetime opposing them both in local government and nationally, so their demise might not be an unwelcome consequence of that strategy.

My hon. Friend the Member for Nottingham East has tabled an amendment that suggests that there should be a 28% tax on the profits of the banking industry, as defined by section 2 of the Banking Act 2009. The reason for that is supported very well in the Red Book. Paragraph 1.63 on page 26, which is entitled “Bank levy” says that

“the Government will introduce a levy based on banks’ balance sheets from 1 January 2011, intended to encourage the banks to move to less risky funding profiles. The Government believes that the banks should make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. Final details of the levy will be published later this year, following consultation. The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”

We have seen a very strange Finance Bill this year, with a very short preamble to be followed later by major changes. If we are going to have a major change which, in the Government’s own words, is going to rebalance

“the burden of taxation between banking and other sectors”,

I cannot understand why they are allowing the reduction in corporation tax for this year to apply to the banking sector. To me, it would seem right to wait for whatever the banking levy comes up with. That fits in very well with what my hon. Friend the Member for Nottingham East is proposing.

--- Later in debate ---

[Chris Leslie]

There is not a Register of Members’ Financial Interests currently published, so for the benefit of the debate could the hon. Gentleman inform the House what that interest is?

[Sajid Javid]

Yes, I am a shareholder in a bank. [Hon. Members: “Which one?”] It is called Deutsche Bank.

[Chris Leslie]

How much?

[Sajid Javid]

That is not relevant. The hon. Gentleman can read the entry in the declaration of interests.

If we are to address the amendments properly and consider the changes to corporation tax that the Government have proposed not just for banks but for all companies, we cannot get away from the serious mess that the economy is in. As Members have heard on a number of occasions, as an inheritance from the previous Government, the Government are borrowing some £3 billion a week and our budget deficit is £155 billion, which is 12% of GDP—the highest in all G7 countries and the highest in Europe.

To address the issue, we need to consider how to restore growth to the economy and start paying back our debt. That will not just be through the changes in the Budget, such as raising extra taxes and cutting spending, but through restoring growth in our economy. That is at the heart of the changes to taxation, especially corporation tax, put forward in the Budget. The gradual reduction of corporation tax from 28 to 24% is all about giving business people and entrepreneurs incentives once again to take the risks that are always involved in starting and running businesses. It is such growth that will rejuvenate our economy and create the employment that we need to push up GDP and help us repay the debt that we have inherited.

--- Later in debate ---

[Mr Gauke]

Amendments 21, 34 and 50 relate to the impact of the corporation tax cuts on the banking sector. Amendment 21 would leave the

“main rate of corporation tax for financial year 2011…at 28%”

for

“banking institutions”, disapplying the 1% decrease, and amendments 34 and 50 ask for an assessment of the impact of the rate reduction on banks.

The proposals are helpful. Understandably, there is a frustration with the banking sector and a desire that it pay a fair share. The Government share that belief. We think that banks should make a fair contribution in respect of the risk that they pose for the UK financial system, which we have seen in the past few years. That is exactly why we announced in the Budget the introduction of a bank levy from 1 January 2011. Tomorrow, my hon. Friend the Financial Secretary to the Treasury will announce a public consultation with a view to implementing the levy on that date, and the measure will be included in next year’s Finance Bill.

The levy is a surgical approach, intended to encourage banks to move to less risky funding profiles, and a contribution reflective of economic risk. A tax based simply on profits, such as corporation tax, is not related to risk and will not create the behavioural effect that we believe the banking levy will achieve.

The overall impact on banks of the proposed reduction in corporation tax depends on a number of factors, and I will provide some details in a moment. None the less, I should like to put it on record that it is entirely right that hon. Members ask such questions. My hon. Friend the Member for St Ives (Andrew George) made a thoughtful and probing speech, and I was also interested to hear the comments of the right hon. Member for East Ham (Stephen Timms). However, I wondered, given his concern about the impact on the banking sector, precisely which angle he was coming from. Those who remember the debate prior to the general election will recall, for example, the remarks of the then Chancellor, the right hon. Member for Edinburgh South West (Mr Darling) who, in an interview on “The Andrew Marr Show” on 21 March, argued against proposals for a unilateral bank levy, saying that he thought it could work only if there were international agreement, as my hon. Friend the Member for West Suffolk (Matthew Hancock) said.

Of the Conservatives’ policy of introducing a unilateral bank levy, which was also a policy of the Liberal Democrats, the then Chancellor said that we were taking a hell of a risk, given that the banking industry employs more than 1 million people in this country. He seemed to be somewhat concerned that we were going to far and too hard. I do not know whether the shadow Minister is worried because the proposals are too tough on the banks, or because they are not tough enough.

[Chris Leslie]

rose—

[Mr Gauke]

That is not an accusation of ambiguity that I could lay at the hon. Gentleman’s door.

[Chris Leslie]

I thank the Minister at least for that recognition, but I wonder whether he could take some time to justify the fact that the proposed banking levy is so low in relation to, for example, the American arrangement. Does he understand the incredulity and frustration that banks should be given this cashback bonus in the form of the corporation tax cut at this particular time? I want to hear him justify that.

[Mr Gauke]

Let me turn to the heart of this matter, because we have had quite a lengthy debate on it. We have heard concerns that the corporation tax would cancel out the effect of the bank levy or offset it, and that there would be a cashback bonus, to use the hon. Gentleman’s phrase. The shadow Minister asked whether the banking levy will “far outweigh” the benefit to banks of the cut in corporation tax. Perhaps the easiest thing I can do in response—there is much more one could say about corporation tax, and I will in future debates—is to refer to my answer to the right hon. Member for Holborn and St Pancras (Frank Dobson), who asked the

“Chancellor of the Exchequer what estimate he has made of the revenue from the financial services sector to be foregone by the Exchequer as a result of the proposed reduction in corporation tax in each financial year to 2015-16.”—[Official Report, 1 July 2010; Vol. 512, c. 610W.]

We have the numbers only until 2014-15, and I should point out that the financial services sector is somewhat broader than just banks. It includes insurance, pension funds and auxiliary financial services, so the numbers refer to the corporation tax cost not only for banks, but for other financial services. However, I will compare those with the bank levy yield. For 2011-12, the corporation tax costs will be £0.1 billion, whereas the bank levy yield will be £1.15 billion; for 2012-13, corporation tax costs will be £0.2 billion, compared with a bank levy yield of £2.32 billion; for 2013-14, corporation tax costs will be £0.3 billion, compared with a £2.5 billion additional yield from the bank levy; and for 2014-15, the corporation tax costs will be £0.4 billion, compared with a bank levy yield of £2.4 billion. Even in this last year, where the differential is at its narrowest, we can see that it has not been cancelled out or offset. There is no cashback, and the banks are not quids in as a consequence.

The test that the shadow Minister gave was whether the bank levy yield far outweighs the benefit of the corporation tax change, and the answer is clearly yes. Given that the proposal for a differential corporation tax rate in amendment No. 21 is not supported by the Front Benchers of the party to which the hon. for Nottingham East (Chris Leslie) belongs, I urge him to withdraw it.

[Chris Leslie]

The Minister is saying that £400 million is a small amount to be given in cashback to the banks in this corporation tax giveaway, but that sum could offset the necessity to scrap the health in pregnancy grant. It could offset the need to reduce the maternity allowance to just the first child. Those are important for users of public services, and he surely understands that.

[Mr Gauke]

Our aim was to rebalance the tax system. We are requiring the banking sector to pay at least £2 billion more in tax as a consequence of these proposals. That is not a minor matter. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but the banks will not benefit because we are introducing the bank levy. I urge the hon. Gentleman to withdraw amendment No. 21, given that his Front Benchers recognise the difficulties of a separate corporation tax rate for banks. I believe that I have satisfied the tests set out by the right hon. Member for East Ham, because the bank levy yield far outweighs the benefits of the corporation tax for banks.

I hope that I have satisfied my hon. Friend the Member for St Ives—

--- Later in debate ---

[Mr Gauke]

Beginning tomorrow, we will consult on the bank levy. The intention is to find a means of discouraging risk, and that is why the targeted approach of the bank levy is appropriate. It will raise additional revenue, and it is right to do so. We think that we have the balance right in raising additional revenue while enabling banks to lend more, and we are also taking steps to encourage that further.

In conclusion, I think that I have satisfied the concerns underlying the amendments and I hope that the amendment will not be pressed to a Division.

[Chris Leslie]

Having heard what the Minister had to say, I am not convinced that he makes a case for giving away £400 million to the banks, especially as Members on the other side of the House constantly ask us where the money would come from and how we would reduce the deficit. That sum would offset the need to abolish the health in pregnancy grant. It would offset the need to reduce to the CPI the indexation of housing benefit. It would offset the need to scrap the maternity allowance for second children, and so on. I hope that my hon. Friends will remember the £400 million giveaway to the banks in this corporation tax reduction.

I recognise that the consensus in the debate is that it is important to test the right amendment this evening. I therefore wish to withdraw my amendment, but I hope that one of the amendments that would require the Treasury to justify and assess the impact of the corporation tax change on the banks will be tested. That is the least we should be doing.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 34, in page 1, line 6, at end add—

‘(2) Prior to this rate taking effect, the Chancellor will place in the Library of the House of Commons an assessment of the impact of this clause on the banking sector.’.—(Stephen Timms.)

--- Later in debate ---

[Stephen Timms]

Indeed, and I am certainly not arguing against the long-established mechanism allowing tax losses to be used in that way. I am simply querying, just as a matter of fact, whether that is the reason why this Bill only makes one of the four promised year’s reductions in corporation tax. I have certainly not come across any other suggestions as to why the Bill is doing that in that way. People who have deferred tax liabilities—as opposed to the banks having deferred tax credits—would benefit from early enactment of the lower rate. Typically, that is people such as manufacturers. If that is the reason, this is, sadly, another case of helping out the banks at the expense of manufacturers.

Surely the Institute of Chartered Accountants in England and Wales is right to say that

“to provide better certainty for businesses”

there should be legislation

“as soon as possible for the proposed reductions in the main rate of corporation tax”.

When will the Government legislate for the remaining reductions? Will they do so in the Finance Bill that we have been promised in the autumn? Are we really going to have to wait for four years of Finance Bills to complete these reductions, as the Chief Secretary suggested, or can we look forward to legislation in the Finance Bill No. 3 of 2010? If certainty for business is the aim, it surely must be done this year at least.

When do the Government intend to introduce their changes to the rate of capital allowances and the annual investment allowance? I listened carefully to what the Minister said about that and perhaps I missed the point but I did not quite grasp which piece of legislation he envisaged those changes being made in. Will they be in the further Finance Bill in the autumn or will they await next year’s Bill? By that time, I suppose we might have some further data on the actual change in business investment in the next 12 months and how that compares with the change on which the Chancellor is pinning his Budget arithmetic.

There is something else about which the Bill is silent but on which we might have expected some change: the differential compared with the main rate of corporation tax inside the North sea ring fence. The ring fence for North sea operations rightly prevents taxable profits from oil and gas extraction in the UK and the UK continental shelf from being reduced by losses from other activities or by excessive interest payments. The ring-fenced corporation tax rate was the same as the main corporation tax rate, until the previous Government reduced the main rate from 30% to 28% from 1 April 2008; we left the ring-fenced rate at 30%. Now that the main rate has been announced as falling to 24%, do the Government intend to leave the ring-fenced rate at 30% throughout the next four years, thus trebling the differential from two to six percentage points or is a reduction to the ring-fenced rate being considered, perhaps along with some other changes to the fiscal regime for oil and gas extraction?

Let me finish by asking one further question. As I reminded the House, it was the previous Government’s explicit aim that corporation tax in the UK should be the lowest among the G7 economies, and we succeeded in achieving that aim. That is one of the reasons why the UK has been so successful over the past decade in attracting so much overseas investment into our economy. Do the present Government intend to ensure that we continue to have the lowest rate of corporation tax in the G7? Will that commitment be maintained?

As I explained at the outset of my remarks, it is not my aim to oppose this clause, but I hope that the Minister will provide some explanation for the omissions I have highlighted, and in particular give an account of why the remaining reductions in the rate of corporation tax have been delayed, and say when the legislation for them will be introduced.

[Chris Leslie]

I am grateful, Mr Benton, that you have seen fit to allow a stand part debate on this important clause, especially at a time when every measure in the Finance Bill and the Budget as enacted needs sufficient scrutiny to ensure that the general public can have confidence in the fact that any revenue forgone is forgone for a good purpose. At a time when our public services are threatened and look set to be cut so significantly, it is very important that, if this country is to give away potential yield through changes such as the corporation tax, this is done for the right reasons.

It is important to note that we want a healthy economy and for our companies, by and large, to be profitable and doing well. I do not, of course, want to revisit in too much detail our debate on the banking sector, but I point out that it is necessary to have an environment in which our companies can be competitive on a global scale, and to ensure that they can succeed. While we want companies to be profitable, we also want them to reinvest a lot of those profits, so that they can improve the capital stock, improve the ingenuity and enterprising innovation that goes on within such companies, and have a longer-term profitability trajectory. It is for those reasons that I am perplexed by the drastic reduction in capital allowances, to just £25,000. Manufacturing companies—the institutions that produce the actual goods we can sell and export abroad—may well be disadvantaged relative to other sectors of the economy.

[Barry Gardiner]

Is my hon. Friend aware of the predicated growth, contained in the Government’s figures, of the private sector generation of income into the Treasury over the next five years, and does he believe that that is compatible with the reduction in capital allowances that has been announced? In particular, would he care to comment on the timing of that reduction at precisely the moment when—if the Chancellor’s figures were to work out—the economy would be about to see the largest part of its expansion?

[Chris Leslie]

I am very disturbed that the Chancellor’s measures are coming at a time when our manufacturing industries are potentially just finding their feet and beginning to think about turning the corner out of the recession. Taking away some of those crucial allowances will not only affect those niche companies, which will, in turn, be the producers of the tool manufacturing equipment and the entrepreneurs whose work is so necessary and has perhaps been funded and supported by those allowances, but will, in a general context, potentially reduce the competitiveness of that particular sector of the economy.

It is a more general matter of debate whether some sectors of the economy benefit more than others from the corporation tax change. As I have said in previous debates, I am not sure whether my constituents would feel that the oil companies, the utilities and the banking sector should also have the gains from this corporation tax reduction. As I said in our debate some time ago, I am not convinced that now is the time to be giving away a £400 million windfall to the banking sector in this corporation tax cut.

[Jon Trickett (Hemsworth) (Lab)]

I am listening carefully to my hon. Friend’s argument. Has not the largest single factor in this recession been, in effect, a private sector investment strike? I am talking about the fact that £6 out of every £10 of the fall in gross domestic product is attributable to a single factor, which is that the private sector some time ago decided not to invest. There are all sorts of reasons why that should be, one of which is the failure of the banks to provide the capitalisation to allow those companies to invest—that touches precisely on the point that he was just making. Given that level of inactivity in investment, are we not facing both an increasingly inefficient private sector and, as has been said, the cuts in the allowances, which will make things worse?

[Chris Leslie]

Indeed that is the case. I know that my hon. Friend has done a great deal of work on some of the analysis of these points. There are arguments to be made for reducing corporation tax to boost competitiveness, but clearly that is a way of encouraging profit-taking and, in turn, the removal of money from companies in the form of dividends. That, of course, benefits us all in some ways, because we are all members of pension funds and so on. However, if it is indeed the Government’s particular choice at this point in time, as we are coming out of a recession, to try to encourage companies to focus on their long-term profitability, might it not be a better strategy, in some respects, to retain some of those capital allowances to ensure that we can fix our banks such that they are able to supply much-needed credit to small companies, in particular, and to the wider industries across the board?

[Barry Gardiner]

My hon. Friend rightly talks about the need for companies to pay dividends and the benefits of that for all of us in society, in particular pension fund holders. Does he appreciate that the portfolio of shares that our pension funds all hold can also increase in value by incentivising companies to reinvest in themselves? That happens by the increase in value of the company through the increased investment that it has made in itself. Is that not a more efficient way of doing things than paying out dividends, which may simply go into private pockets for consumption?

[Chris Leslie]

That is a moot point and I would not go to the wall to argue against reducing corporation tax in this way. All I am suggesting is that there are other strategies that I do not feel that the Government have properly explored. We ought to be focused on growth and on how business can contribute to it. Let us not forget that we have such a deficit situation in this country not because of so-called excessive public service consumption but because tax receipts have been so depressed. That has partly been caused by the credit crunch and the lack of credit available, which provoked the private sector investment strike that has been mentioned by my hon. Friend the Member for Hemsworth (Jon Trickett).

[Stewart Hosie]

When the hon. Gentleman and his hon. Friend talk about a private sector investment strike, I wonder whether it might not be because there has been negative growth in unused sterling credit facilities for the past 27 months. Businesses, large and small, have simply been unable to get the cash.

[Chris Leslie]

Indeed. There are liquidity problems across the economy and they remain. There are rumours in the air about the return of quantitative easing and that we might be entering into double-dip recession territory. All these things prove that the so-called independent Office for Budget Responsibility’s downgrading of growth predictions as a result of the measures in the Budget suggests that the Government had a choice in their hands to steer the economy in a particular direction and that they have chosen not the pro-growth path that the Liberal Democrats and the Labour party advocated before the election but, because of the damascene conversion of the Secretary of State for Business, Innovation and Skills the day after the general election, the anti-growth path. They will take a whole chunk of money out of the economy by cutting public services so steeply and so massively in such a short space of time.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does the hon. Gentleman not appreciate that there is no money for the private sector from the banks because of the legacy of the last Labour Government? The Government are borrowing £3 billion a week—there is no money left for the private sector.

[Chris Leslie]

I do not agree that the private sector is crowded out in that way. I do not think that there is quite the evidence to suggest that. However, I am not sure that the hon. Gentleman, had he been in government during the crisis that the credit crunch provoked, would have done anything massively different to underpin and insure some of the banks against their losses at that time, purchasing shares in various banking institutions in order to keep the banking system going. I understand the partisan nature of his point, but all parties would have had to create that safety net for the banks at that time. I do not want to dwell on these matters, because time is limited and it is important to make my speech as brief as I can.

I want to ask the Minister specific questions about the absence of the small profits rate cut from the Bill, a matter on which I tabled an amendment. It is important to know why on earth it is not included. Typically, large corporations with their multi-million pound profits are at the front of the queue as far as this Government are concerned, but the real engine of growth in this economy is small firms. When I asked the Federation of Small Businesses about this, Stephen Alambritis, the head of public affairs, said that he was surprised at the signal sent to small businesses by the way in which the Bill is framed. He told me:

“It is important that small business is recognised in discussions about the Finance Bill. There should be a reduction in the tax rate for small business as there is for larger companies. There seems to be some discrimination from the coalition government, in that they are favouring large companies at the expense of small business”.

The Minister might say, “Of course they will get their cut,” but can we really trust the Government to deliver that if they are not putting such a measure in the Bill, particularly if they are not putting in the future years of the main rate cut, too?

A number of questions on this clause are exceptionally important. I obviously do not want to talk for too long, so I shall let the Minister respond.

[Mr Gauke]

In the Budget, my right hon. Friend the Chancellor announced a programme of measures aimed at improving the competitiveness of the UK economy, including four annual 1% reductions in the main rate of corporation tax, down to 24% in 2014, and a reduction in the small profits rate to 20% from April 2011, in contrast to the previous Government’s plan to increase it to 22%. That will reduce the tax rate for some 850,000 companies. The Budget also included, from April 2012, a reduction in the capital allowances main rate from 20% to 18%, a reduction in the special rate from 10% to 8% and a reduction in the annual investment allowance to £25,000. Despite that, investment allowances will permit more than 95% of businesses to offset completely their annual plant and machinery expenditure. As I said in our debate on amendment 49, by delaying these changes to allowances for two years but reducing the corporation tax rate next year, we are giving companies a year’s advantage.

We have been asked why we are legislating for the 1p cut in the main rate this year. This is the usual convention as the corporation tax main rate is usually set a year at a time. The right hon. Member for East Ham (Stephen Timms) is right to say that there was an exception in 1984, when four years were done together, but the usual convention is to do these things a year at a time. A distinction has been made between the mainstream rate and the small profits rate. The right hon. Gentleman, who was a distinguished Treasury Minister for several years, may have forgotten that payers of the corporation tax main rate are within the quarterly instalments payment regime and so require advance notice of the rate, as they might be making payments of corporation tax liability before 1 April of the relevant year in which profits fall in the next financial year. Payers of corporation tax at the small profits rate do not require advance notice, as they have until nine months after the end of the accountancy period to pay their tax.

Both main and small profits corporation tax rates have traditionally been set in this manner, and what we are doing is consistent with the usual approach. The right hon. Gentleman asked about deferred tax assets, but they are not the reason why we are doing this; we are simply following the usual convention.

Opposition Members have asked whether business can have faith in what this Government do, but they should give us some time and they will see exactly what we will do: we will follow through on these promises. No great concerns about this issue have been raised with us. On deferred tax assets, when I was in opposition, I received representations not from a bank but from a major manufacturer who made the point that the right hon. Gentleman has made, but that is not what has driven our thinking regarding the timing in this area.

Finance Bill

Chris Leslie Excerpts

Tuesday 6th July 2010 Commons Chamber

[Danny Alexander]

I am grateful to the hon. Gentleman for giving me the opportunity to place on the record my thanks and those of this Government to Sir Alan Budd for his superb work in establishing, in a short period, an independent Office for Budget Responsibility with a strong reputation. It was always known that he intended to move on after a short period—a few months—in his post, and that is what he is doing. In a short time, he has established greater independence of the forecasts that go with the Budget than the previous Government managed in 13 years.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Sir Alan Budd is leaving the Office for Budget Responsibility, so to ensure that that organisation is seen to be independent, will the right hon. Gentleman give the House of Commons the power to appoint the successor or is he going to keep that for himself as a Minister?

[Danny Alexander]

I am not sure that that power ever rested in the hands of the Chief Secretary but, as the hon. Gentleman knows from the Gracious Speech, the Government intend to implement legislation to put the OBR on a statutory footing. He will have the opportunity to make that point in considering that legislation, and I am sure that he intends to do so.

--- Later in debate ---

[Danny Alexander]

I am going to make progress for a few moments, or the former Chief Secretary will never get a chance to have his say.

Clause 4 takes further action to tackle the deficit by increasing the standard rate of insurance premium tax from 5% to 6%. The higher rate of insurance premium tax will increase from 17.5% to 20% from 4 January 2011, to bring it into line with the new VAT rate. The increases are both fair and sustainable.

[Chris Leslie]

rose—

[Danny Alexander]

I am going to make some progress.

[Chris Leslie]

On insurance premium tax?

[Danny Alexander]

I give way on insurance premium tax.

[Chris Leslie]

Is it fair to increase the higher rate of insurance premium tax to 20% on travel insurance, which is vital for many ordinary working people as they take a break and go on holiday? They may be able to do so for only one or two weeks a year. If they do not have travel insurance, that could leave them in significant jeopardy. Will the increase not prevent or deter people from taking out travel insurance?

[Danny Alexander]

I am sure that the hon. Gentleman is right to exhort people to take out travel insurance. As he will know, when insurance premium tax was established, both its lower and higher rates were linked to VAT. It is therefore right that they go ahead together on the same basis.

We have inherited plans to limit tax relief on pension savings for the wealthiest. We have concerns about the complexity of the changes and their potential consequences for pension saving, UK competitiveness and the complexity of the tax system. However, given the state of the public finances, we cannot be blind to the £3.5 billion of revenue that the policy was set to raise. Therefore we have set out our commitment to protecting the public finances by pursuing an alternative approach that raises no less revenue than existing plans, potentially by reducing the annual allowance. We will therefore engage employers, pension schemes, experts and other interested parties to determine the design of an alternative scheme. To keep our options open, clause 5 provides the power to repeal the regime that was legislated for in the Finance Act 2010.

Secondly, our Budget stands for fairness. This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden. As my right hon. Friend the Chancellor said in his Budget statement, it is a progressive Budget.

--- Later in debate ---

[Jacob Rees-Mogg]

I am sorry to say that the hon. Lady left my train of thought at the wrong station. The point I was making was that, if we carry on issuing gilts at an even faster rate, long-term interest rates will rise, and it is on long-term interest rates that mortgages end up being priced. If we look at the gilts market, we see that the very thought—the prospect, the hope—of a Conservative Government saw it rally, therefore reducing the cost of borrowing to people in this country, whether Her Majesty’s Government or private individuals. So yes, we have very low overnight rates, but the long-term rate set by the gilts market is more important for mortgages.

[Chris Leslie]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

It would be a privilege.

[Chris Leslie]

But surely the hon. Gentleman, as a sensible and grounded individual, will recognise that there is a world of difference between the Greek situation, to which some of his more hot-headed colleagues have compared our country, and the rather sturdy and well managed way in which we deal with our debt and gilts issuance in this country.

[Jacob Rees-Mogg]

I do not believe that I had mentioned Greece in the few words that I had spoken. I would say, however, that it is better to cut before getting into a Greek situation. I admire my right hon. Friend the Chancellor of the Exchequer because, in his foresight, he has brought forward action early. Countries in a Greek situation find that they can get no money from the financial markets and have to go cap in hand to the International Monetary Fund or the European Central Bank. How much better it is—how much more “prudent”, to use a word once popular with Labour Members—to get our house in order before reaching that state of desperation.

--- Later in debate ---

[Jacob Rees-Mogg]

I think that Neville Chamberlain managed to balance the budget, so we had a Chancellor who was a Conservative doing quite a good deal of work in the 1930s. However, we may be getting a little abstruse and far away from the 2010 Finance Bill.

[Chris Leslie]

Can I ask one last question on the 1930s?

[Jacob Rees-Mogg]

I know that I am accused of being old-fashioned, but I do not want to conduct the whole debate in the 1930s.

Let us move back to 2010 and the need for the tax rises to be as they are, not higher. Clearly, at 36.4% of GDP, we are at a tax level that it is very difficult to surpass. I remind Labour Members who disparage the great Professor Laffer that when tax rates were at 83%, they still failed to get above 36.4% of GDP, so taxation is as high as it can be.

My final point is on spending. The problem with spending is that it got out of control post the period when Labour followed the Conservative plans for public spending. It is simply not sustainably to have Government spending at 48% of GDP when the tax base is 36.4% of GDP.

--- Later in debate ---

[Mr Kevan Jones (North Durham) (Lab)]

I congratulate the hon. Member for North East Somerset (Jacob Rees-Mogg) on his contribution. I am really pleased that the Rees-Mogg family are all in this together with us in the tough times ahead, and I hope that the financial strain that the Rees-Mogg family will have to face will not mean that the hon. Gentleman’s tailor is somehow deprived of business.

It is a pleasure to speak with you in the Chair for the first time, Mr Deputy Speaker. This is the first time that I have spoken in a debate in this Parliament, and it is an opportunity not just to recognise the dangers of the Budget but to pay tribute to the benefits that we in North Durham received from the 13 years of the Labour Government.

I congratulate the hon. Member for North East Cambridgeshire (Stephen Barclay), my hon. Friend the Member for Scunthorpe (Nic Dakin) and the hon. Members for Ipswich (Ben Gummer) and for Weaver Vale (Graham Evans) on their excellent maiden speeches. They all rightly paid tribute to their predecessors, and will be strong advocates for their constituencies.

This Finance Bill is a bit odd in that it is a two-stage Bill. Some of us have been used to having the Second Reading debate on the Floor of the House, and then the Members who had either upset the Whips or were financial saddos went into a Committee Room for several weeks for the Committee stage.

[Chris Leslie]

It’s a shame.

[Mr Jones]

My hon. Friend says it is a shame that that is no longer the case. I know that when he was a Back Bencher two Parliaments ago he was an assiduous Member, perhaps with the sad anorak tendency of those on the Finance Bill Committee.

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[Mr Jones]

Yes, another myth that people have been peddling is that development agencies like One NorthEast were somehow profiting and spending. I will tell anyone what One NorthEast did in my constituency. It helped out a perfectly viable business in the middle of the recession, which could not get a £2 million loan that it needed to be underwritten. When One NorthEast stepped in, 20 extra jobs were created in that small business and another 50 were safeguarded.

[Chris Leslie]

Are not small businesses doubly affected because of the cash-flow problems that they may experience? With VAT at 20%, it is difficult to persuade customers to pay up on time. Many businesses may go to the wall, and insolvencies may arise as a result of the VAT change.

[Mr Jones]

That is a very good point. The Budget offers no help whatsoever for the small businesses to which my hon. Friend referred. However, it is not just small businesses that are affected. Some supermarkets are very wary about the increase because of what they fear will happen to their businesses. The finance director of Tesco has called on the Government to freeze VAT at 17.5% because, he says, the economy is very fragile, saying:

“The recovery is happening but it’s fragile and therefore the balance is important”.

He says VAT

“is going to be part of the austerity package but it is a question of when you do it. The best thing would be to wait a bit.”

Let me also give Sainsbury’s a mention. According to Eye Spy MP, the Chief Secretary has been shopping there and buying Quavers. I am not sure whether they were intended to sustain him during tonight’s debate. Justin King, the chief executive of Sainsbury’s,

“warned the incoming UK government to refrain from increasing VAT amid speculation it could be an option considered by”

the coalition Government.

As has been pointed out, the VAT increase will have a real effect on retail business large and small. As for the consumer viewpoint, Mike O’Connor, chief executive of Consumer Focus, has said:

“Thousands of the things we buy every day are going to get more expensive. The VAT rise will hit the poorest consumers hardest as people who earn least already spend proportionately more of their income on VAT and it will be even more important for consumers to shop around for the best bargains.”

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[Mr Jones]

Exactly, and if these bodies are then to be burdened by this VAT increase, that will severely affect them.

On the VAT issue, I wish now to discuss an excellent document, which I believe has been sent to all hon. Members, produced by Save the Children and headed “Why the rise in VAT must be cancelled”. It makes all the arguments that the excellent Library note makes about the poorest being affected the worst, but it also gives some very good examples. A table on page 3 shows that the essential items to which my hon. Friend the Member for Stretford and Urmston (Kate Green) was referring are not luxuries but items that a family would require. I am talking about things such as washing machines, electric ovens and hobs and children’s bed frames, which will all be affected by this increase. The hon. Member for Solihull said that people should rush out to buy these things now to avoid the VAT increase in January. What she does not understand is that some individuals do not have the disposable income to be able suddenly to go out, shop around and get them. Many of these people rely on credit, so they face a double whammy of credit, usually at a high interest rate, and the effect of the coming VAT increase.

The Liberal Democrats should hang their heads in shame for supporting this Budget and especially these proposals, which are not progressive but will hit the hardest up in our society. I just hope that when it comes to the votes on the VAT increases they have the courage to oppose them; otherwise, they will have an electoral price to pay at the ballot box in local elections and others.

The proposals in the Budget to increase the insurance premium have not been given a lot of attention tonight.

[Chris Leslie]

It is a stealth tax.

[Mr Jones]

From a sedentary position, my hon. Friend rightly says that this is a stealth tax, and again, it will affect some of the poorest in our community. Earlier in the debate, we were talking about the level of fuel duty and rural communities where a car is not a luxury but an essential item that enables people to get around. This Budget will increase the insurance premiums for those drivers, with young drivers being particularly affected. Just because of their age, those drivers pay the highest premiums and they will have to pay an extra 1% under this Budget. In some cases, that will stop young drivers being able to get access to insurance.

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[Mr Jones]

What this proposal will lead to—this is my fear—is an increase in the number of uninsured drivers in those communities, and thus to the prospect of many people endangering not only their own lives but those of the people involved in their accidents.

My hon. Friend the Member for Nottingham East (Chris Leslie) referred to the tax on travel insurance as a stealth tax. It will be a tax on individuals, but it has also been condemned as a tax on the industry, although the industry thought the tax would be higher. It is an example of the Government’s negotiation tool of leaking or briefing that something is going to increase by x and then introducing a smaller increase as if somehow that is a great concession. Insurance premium tax will increase from 5%, but the higher rate of IPT for travel insurance will increase from 17.5% to 20%. That will have a direct effect on every constituent who goes on holiday next year. I fear that people will go abroad without proper travel insurance, and the taxpayer will have to pick up the bill in many cases.

[Chris Leslie]

My hon. Friend is right. Often the taxpayer is lumbered with having to rescue people abroad who have found themselves in precarious situations owing to the lack of proper insurance. Does my hon. Friend agree that this rather mean-spirited holiday tax will have all sorts of unforeseen consequences?

[Mr Jones]

Yes. For many of my constituents a holiday is one of their largest annual expenditures. So if an extra tax is added there will be a danger that people, especially the young, will not take out proper holiday insurance and the taxpayer will have to pick up the bill on occasions. There is also the distress caused to families.

There is a little-known item on MPs’ expenses in the Bill. I tried to ask the Chief Secretary a question about it early on, but he ignored it. I know we should not be speaking about our expenses and that many hon. Members cannot mention the IPSA word without using unparliamentary language. I am not going to do that; I actually got some money out of it yesterday.

The proposals in the Finance Bill allow our expenses to be treated as they were before in terms of their tax status. I cannot understand why the deposit that we are to be given for the rental of our second homes in London is taxable. I do not know whether it is a mistake or why that has been excluded. I am sure that if we send a tax bill to the Independent Parliamentary Standards Authority it will not pay it.

Already we are treated for tax purposes as though we run a small business. Before, we were allowed to claim legitimate expenditure for the filing of tax returns. IPSA has taken that away from us and we now have to pay that cost, which in my case will be something like £600 next year. I would like to see all our expenditure such as that on equipment, on which there is capital depreciation, taken out of tax. That would solve the issue in terms of our being looked at as small businesses.

I rued the day a few years ago when I knocked the door through in my office and found out that I had a tax liability for it of more than £1,000. Do not ask me what I will do with the door in the office when I stand down as a Member of Parliament, but I have paid that tax. I jest, but I seriously suggest that we need to look at this area. Clearly, IPSA and the court of public opinion said that we could no longer claim for legitimate tax advice. That is fine. I do not need a tax adviser, unlike some hon. Members, to handle my personal tax affairs. So we need to have a look at that point.

Finally—[Hon. Members: “No—more!”]—I come to corporation tax and an issue that has emerged from tonight’s debate. The Budget statement said that corporation tax would be reduced over a four-year period, but the Bill reduces it for only one year. What confidence does that give businesses looking to make long-term investments? Are we to have some sort of assurance, or is the Bill to be amended to ensure that corporation tax is reduced to the 24p proposed?

I have never spoken about Northern Ireland affairs, but I thought this one was too good to miss. There is an issue that affects Northern Ireland more than other parts of the country: the possibility of driving corporations south to the Republic of Ireland. The Chief Secretary said how wonderful it is that our corporation tax rate will be among the lowest, but the rate in Ireland is 12.5%. I know that Members of the Northern Ireland Assembly are concerned that, even with the decrease, it might be attractive for businesses to move from the north to the south. When the Government look at how to rebalance the Northern Ireland economy, it will be important to take that point on board.

The pain in the Budget will affect many constituents of mine. Thirteen years of Labour Government transformed the infrastructure of North Durham. We have two new hospitals, five new primary care centres and GP surgeries, new dentists and new schools. Not only did that have a beneficial effect on the life chances of many of my constituents, but it put money into the local economy. Now, with yesterday’s announcement on Building Schools for the Future, we see that that tap is to be turned off. We are going to go back to the days when I was chair of school governors in Newcastle. Yes, as the Secretary of State for Education said yesterday, education is about good teaching—I passionately believe that—but teachers cannot do that if they have to have a bucket to catch the water leaking through the roof.

The other measure that will have a big impact on my constituents is the freeze in public sector pay—something I feel passionate about. When I was a Minister, I helped not only Labour Members but all Members in standing up and arguing for our servicemen and women. Frankly, the pay freeze announced by this Government is a disgrace. When we have people risking their lives in Afghanistan, to impose a pay freeze on them is a disgrace.

I thank everyone for listening tonight. I shall enjoy the debates on this Finance Bill, because it is right that it gets proper scrutiny and that we explode the myths that are being propounded. That way, when people in my constituency and elsewhere are having their housing benefit cut and they are being evicted, they will know the reasons why. It is more important that we stop some of the more horrendous measures in the Bill happening at all, but if they do happen, we need to be able to lay the blame in the right place. We expect this from the Conservatives. The north-east suffered under the Conservatives for 18 years. What we do not expect is the collaboration that we are seeing from the Liberal Democrats in the coalition, or the pathetic excuses we heard the hon. Member for Solihull give to justify the horrendous measures that are coming my constituents’ way and hers as a result of this Budget.

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[Charlie Elphicke]

I point out to the hon. Lady that the number of affordable houses built in 1995-96 was 74,530, whereas the average for the previous Government’s entire tenure was just 40,000 affordable homes built each year. Why was that? Last year’s figure was 20,000 below what was achieved under the outgoing Conservative Government. As I said, we built 74,000-odd a year, whereas last year the previous Government built 55,000, so I do not think that they have any record to stand on when it comes to affordable housing, except that of a roll of shame. Their record is an absolute disgrace.

What we need is for the UK to grow faster, because the best cure for deprivation is a job. Too many jobs were taken away by the previous Government’s galactic economic incompetence, and we need to have change, so I want to make the case for that. Will the UK grow faster with a larger public sector? Will the UK grow faster with even higher taxes, as were planned by the previous Government? Will the UK grow faster with ever more debt, or would that result only in ever-higher interest rates, a weaker currency, an increased country risk and our country’s credit rating at risk? I think that the right decisions have been taken, because the UK will grow faster with a lower jobs tax.

[Chris Leslie]

I wonder whether the hon. Gentleman recalls what the so-called “independent” Office for Budget Responsibility said about the downgrading of growth forecasts as a direct result of these Budget measures. What was the OBR’s finding? Did it say that growth would increase or decrease as a result of the measures in the Budget?

[Charlie Elphicke]

The hon. Gentleman will know that the OBR itself said that that was misleading. He will also know that the OBR ruled that the figures set out in the March Budget were a total work of fiction and a disgrace, and it downgraded them. The true downgrade was that of GDP growth by 0.5% to 1% by the OBR when it put right the fiction that had been produced previously, and the misleading about the economics of our nation. The hon. Gentleman does not have a leg to stand on.

This country will grow faster with a lower jobs tax, with lower borrowing and with a low rate of corporation tax, as set out in clause 1. The key point that I want to make is that the fall should be faster, because I want to see a corporation tax rate of just 19% in this nation by the end of this Parliament; that would give us a real revolution. I would like us to have a participation exemption, as exists in the Netherlands, Ireland and other places, to make our nation a European headquarters company of the European time zone. I think that capital gains tax is necessary, but business assets should be taxed lower. That was one of the few things that the former Prime Minister got absolutely right, and it is a great shame that we do not have a differential level, or a higher entrepreneur’s relief. Ideally, that would be extended, because we need to encourage more jobs and growth, and an expansion of the private sector.

I particularly welcome the new business national insurance relief, which is extraordinarily important. Obviously, as a representative of Dover, I would say that ideally it should be extended across the nation, especially in deprived areas of the south-east that have benefited from social structural European funds—not just Dover but other parts of east Kent and the south-east. We need to clear away the deprivation and the benefits culture that has grown up in recent years so that we can unlock the potential, the hope and the chances in each and every citizen of our nation. If we get them off benefits and back into work and break the cycle of poverty, we bring hope and unlock that potential. That to me is the most important thing—to give everyone in this country a real crack at opportunity in life. In this Budget and this Finance Bill, difficult and bold decisions have been taken, but they are the right decisions, and I support the Bill.

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[Ms Eagle]

Time will tell, although there is not widespread acknowledgment in the economic profession that some of the Budget forecasts are right—there is controversy about them. This will play out, however, so we will be able to see who is right in due course.

My hon. Friend the Member for Luton South (Gavin Shuker) talked about the balance of risk in the Budget and the worries about problems with infrastructure investment, the fact that it is being cut in his constituency and the implications for employment incentives. My hon. Friend the Member for Brent North (Barry Gardiner), with his characteristic ingenuity, managed to bring Harry Potter into our Budget deliberations, pointing out that our choices define who we are. I thought there was going to be a fight between him and the right hon. Member for Uxbridge and South Ruislip (Mr Randall), who has, I suspect, enjoyed rather a liquid evening. He was dragged off before anything more untoward happened.

My hon. Friend the Member for Pontypridd (Owen Smith) pointed out the wrong-headedness of the crowding out of private sector investment theory that underlies some of the judgments encompassed in the Bill.

My hon. Friend the Member for Derby North (Chris Williamson) made an extremely good speech about the seriousness of the Budget choices and made a good argument that they are wrong in this case.

Today has been quite an interesting day because of what has been happening in the Office for Budget Responsibility as we have been debating the Finance Bill. As we were coming into this debate, it was suddenly announced that Sir Alan Budd, who has become the oracle in the past six weeks, had decided to retire and leave the OBR after a mere three months in charge. That startling piece of information was played down by the Treasury, as one would expect, but it did prevent the Chief Secretary to the Treasury from praying in aid at every verse-end the forecasts that the OBR has produced to justify some of the policy decisions in the Budget.

The official line is that it was all planned in advance—that Sir Alan was always going to be away after he had set up the OBR—and that, somehow, nothing untoward has happened. However, I would be interested to know whether the Minister responding to the debate tonight can cast any further light—in the interests of transparency, of course—on what on earth has been happening with the OBR and, in particular, with Sir Alan Budd.

[Chris Leslie]

It would certainly be interesting if the Minister could cast some light on that, but would it not also jeopardise the so-called objectivity and independence of the OBR if the Chancellor simply chose Sir Alan Budd’s successor by himself?

[Ms Eagle]

These are issues to which I am sure we will return when the Bill establishing the OBR on a statutory basis comes before the House. However, following the farrago that we have seen, it is important that this House should establish the principle pretty quickly that the head of the OBR should be appointed by this House and be answerable to it. When the Bill establishing the OBR is published, I certainly hope that it contains that provision.