Finance (No. 2) Bill

Debate between Fiona O'Donnell and Shabana Mahmood

Wednesday 25th March 2015 Commons Chamber

[Shabana Mahmood]

My hon. Friend is absolutely right. We have been debating whether VAT will go up, but new clause 1 is pretty innocuous. It calls only for a review and an assessment of the impact the rise in VAT has had on living standards. If the Minister wanted us to believe what the Prime Minister said today in Prime Minister’s questions—that he is ruling out a rise in VAT—then what is the problem? Adopt the new clause, add it to the Bill and let us have the assessment. He would be able to show how VAT has had an impact and why the Conservatives are doing such a good job, if they are elected again, in not letting it go up.

[Fiona O'Donnell]

Given the lack of a response from Government Members, may I suggest that seeing the impact of the increase in VAT written down might make it harder for the Tories and the Liberal Democrats to break their promise the second time around?

[Shabana Mahmood]

My hon. Friend is absolutely right. That is the only conclusion we can draw from what the Minister and the Prime Minister have been saying today. If the Minister really wanted to back up the Prime Minister’s claims, and to give us a hint that he might be believed, he should have just accepted our new clause. It is straightforward, and adding it to the Bill would shine some light on the impact of VAT. We are very clear that we will not raise VAT. It may be that the Government do not want the facts out in the public domain because they plan to do so.

[Shabana Mahmood]

I am going to finish now, because I want to give time to everybody else who wishes to speak in the debate.

We all know what is coming if the Conservatives are elected at the next general election: VAT will go up. That is what their record tells us and that is what their plans require. If the Minister wants to be even a little bit believable—even 1% believable—he should at the very least accept new clause 1 and set the cat among the pigeons, but I do not think he will take that opportunity today.

[Fiona O’Donnell]

It is pleasure to speak in this debate—I hope it will have been worth the wait—and to serve under your chairmanship, Mr Hood. I hope that we both have the opportunity to repeat the experience after 7 May.

I rise to support this excellent improvement to the Bill proposed by my hon. Friends on the Front Bench, because I would like to better understand the impact of the VAT increase in my constituency. The Tory long-term economic plan is a marketing con and a rebranding of a five-year failed economic plan—five years of broken promises on borrowing, the deficit and VAT. I do not know if Government Members have been watching a new programme—on ITV down here, but on STV in my constituency—in which hypnosis is used to shift people’s perception of reality. I am not sure if that is what they are doing, although there does not seem to be anyone asleep in the Chamber. We all seem to be wide awake—certainly Labour Members are wide awake to the impact of the Government’s failure to deliver on their economic promises. Simply saying, “We’ll now call it a long-term economic plan, because it has not quite worked out in the short term”, is not going to fool anyone.

On the increase in VAT, I remember meeting my local chamber of commerce. In East Lothian, we do not have large-scale manufacturing or large employers, apart from in the public sector, so the private sector is largely made up of small and medium-sized enterprises. When I asked them how they were coping with the changes in the economy they said that the single-biggest factor for them was the VAT increase. It had done the most damage to their businesses. Other Members have spoken about its impact on the poorest in our communities, but in East Lothian it has also had an adverse impact on entrepreneurs and businesses—the people who should be creating the jobs that could eradicate unemployment in my constituency.

--- Later in debate ---

[Shabana Mahmood]

This might be the one time during a Finance Bill debate when the hon. Gentleman and I have been in complete agreement. The uncertainty caused by the Conservative party’s positioning over Europe and the Prime Minister giving in to the needs of his party, rather than the national interest, have caused a huge amount of uncertainty. In every conversation that I have had with businesses ever since the Prime Minister made his announcement, that has been the No. 1 issue that they have raised when talking about their future in our country, their future ability to invest in our country, and their future ability to employ more people in our country. It has caused a huge amount of consternation and uncertainty, and the Conservative part of the coalition has been wrong to put its party interest ahead of the national interest.

Our amendment seeks to put flesh on the bones of what is happening to corporation tax by assessing the impact on and the benefit to smaller companies with 50 or fewer employees, which make up the vast majority of private companies in our country. At a time when there are still difficult financial choices to make and a relatively limited number of ways to raise revenue and help support businesses to grow, the evidence suggests that now is the time to give much more support to smaller businesses, and to prioritise smaller businesses for some change in their circumstances, ahead of larger businesses, which have, with the support of all parts of the House, fared pretty well when it comes to cuts to the headline rate of corporation tax.

There is general agreement that small and medium-sized enterprises are the engine of growth in our country, employing more than half the private sector work force and contributing to 50% of UK GDP, but times remain tough and they face wide-ranging challenges. They struggle with high energy costs that do not seem to be getting much better despite wholesale price cuts of 20% in the past year, and with late payments and charges. According to the Government’s own figures, 44% of SMEs had a problem with late payments last year, with the average small business owed over £30,000—an astonishingly high figure.

[Fiona O’Donnell]

Does my hon. Friend agree that it is important that we assess what the larger corporations do with their extra income as compared with small businesses? Small businesses in my constituency are more likely to create jobs, while larger companies are more likely to give the money to their shareholders.

[Shabana Mahmood]

My hon. Friend makes an important and interesting point. This is not only about how we how we make choices that prioritise help for those who particularly need it—my case is that SMEs need particular help with business rates—but the impact of the choices we are making and whether they are leading to the change that we hope to see. My case—I know she will agree—is that additional support for SMEs will yield greater gains for UK plc.

This is not about pitting one type of business against another. Government Members have tried to argue that the rise in corporation tax from 20% to 21% that we advocate is an anti-business move, but every single penny of the money from that change will be spent on SMEs, and I defy them to try to imply that they are not true businesses.

[Fiona O'Donnell]

rose—

[Shabana Mahmood]

If my hon. Friend wants to intervene, I will give way again.

--- Later in debate ---

[Fiona O’Donnell]

I am grateful to my hon. Friend; I was enjoying her contribution so much that I was going to desist. Does she agree that in the Consumer Rights Bill the Government missed an opportunity to give small businesses consumer rights, and that is often leaving them open to abuses by larger organisations?

[Shabana Mahmood]

My hon. Friend is right. I am glad that she has put on record the interplay between the Consumer Rights Bill and small businesses. That was a missed opportunity. The Government should have taken the opportunities available to them during the passage of that Bill to offer a further boost to these struggling businesses—all 5.1 million of them. The vast majority of businesses in our country could have been supported.

Small businesses struggle not only with high energy costs, late payments and charges, but with access to finance. Every time we discuss these issues, the problem of access to finance comes up. I am afraid that the Government have failed to get a grip on this. Since 2010, lending has fallen by a colossal £56 billion. Even in the most recent quarter, net lending to small business fell by a further £1 billion. Research has shown that some 85% of small businesses are locked into the big five banks alone. It has also shown that most SMEs will approach only the larger banks when looking for finance, and that even then the rejection rate is about 50%.

Then there is the pressing issue of business rates. Business rates are levied on the estimated market rental cost of most non-residential properties, and currently based on 2008 rental values. In 2012-13, they raised £26.1 billion. Relief on business rates exists for low-value properties—those with a rateable value of below £6,000—which are subject to a 100% discount. Since April 2013, local authorities in England have been able to retain between a quarter and a half of the rates raised from new developments.

For many small businesses, business rates are a significant overhead that they need to factor in. More than one in 10 small businesses say that they spend more on business rates than on their rent. The only choice for many of those shops, workshops, start-ups and others that pay business rates is to pass the costs of the rates on to their customers.