Budget Responsibility and National Audit Bill [Lords]
Geraint Davies Excerpts(13 years, 1 month ago)
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Chris Leslie
If the OBR is to do an adequate and holistic job in commenting on economic prospects, it surely needs the clear and explicit right to comment on employment policy, growth policy and so forth. My hon. Friend is absolutely right to raise the issue of employment and jobs. The most recent figures show that the jobseeker’s allowance claimant rate is 8% of the population, which is a 17-year high, and a prediction of 2.6 million unemployed. Again, that is likely to be revised upwards by the OBR when it comments on the forthcoming Budget.
My constituency, Nottingham East, symbolically passed the 10% claimant count rate, which is a very depressing milestone. For those reasons, and because long-term unemployment is increasing so quickly—it is up 24% in the last year—and more than one in five young people between the ages of 16 and 24 are out of work and on the dole, surely we need the charter for budget responsibility to include a growth mandate, and for the OBR to have the ability to assess the impact of the Treasury’s polices on jobs and growth.
Geraint Davies (Swansea West) (Lab/Co-op)
The Bill states:
“It is the duty of the Office to examine and report on the sustainability of the public finances.”
The sustainability of public finances involves three factors: tax, spend and growth. In tomorrow’s Budget, the Chancellor is expected to say, “This is a Budget for growth with very little change in tax and spend,” but it would be remarkable and ridiculous if two massive parts of the sustainability of public finances were not properly accommodated within the OBR.
Chris Leslie
My hon. Friend is absolutely right. It would be such a pity if this edifice—the OBR—did not scrutinise the things that the Government know they are vulnerable on, and on which their policies are deficient. The Government do not have a strategy for growth and jobs, and we need the OBR to be able to expose that. Growth has a number of drivers—
Chris Leslie
If a policy were having a significantly adverse effect on jobs, such as some of the policies pursued by the current, Tory-led Government, it would be useful to have an independent, authoritative budget office to comment on that and to flag it up—to put out a red alert, as it were—as something that parliamentarians ought to comment on. I would not have a problem with that level of commentary. We should be big enough to cope with that level of challenge, audit and scrutiny. We would not be giving the OBR any power to make decisions; the point is simply to shine a spotlight on Treasury and Government policies.
Chris Leslie
If my hon. Friend will allow me, I will not give way. I have been speaking for rather a long time and I want to stop, but hon. Members may wish to make their own comments individually.
Clearly we need a proper growth strategy, but a growth mandate would also help. We need to start focusing on future growth industries and maximising our comparative advantage. We need to cast forward with a growth strategy not just for a decade, but for several decades. We need to focus on skills and, yes, a fiscal strategy, but we also need to focus on job creation, and a growth mandate with the clarity for the OBR to make its own assessments would certainly be a step in the right direction.
John Mann
I will have to resist—not because I am not keen to respond, but because I see immediately that Mr Deputy Speaker does not want me to stray into taxation policy. This is about the statistics, and the statistics are fascinating when we know that Labour Chancellors have put up petrol duty so little in comparison with Conservative Chancellors. We know why: it is because we are on the side of industry and of business. We have not said that enough; we have not been proud enough to say it, and we need to say it far more.
When it comes to economic decision making and the ability to have comparators, the statistics are vital. That is why I emphasise that, in essence, amendment 1 is a pro-Government amendment. I predict that, at tomorrow’s Budget, the Office for Budget Responsibility will not provide such analysis. It is wrong that it will fail to do so, but its excuse will be that it does not have a mandate. We have an opportunity to put that right. I look to the Minister to nod to show that she is going to accept this excellent amendment in order to strengthen decision making and to be on the side of the motorist and those who want a proper debate on the labour market and jobs in this country. I commend the amendment to the House.
Geraint Davies
The amendment is essentially about making growth a centrepiece of the Office for Budget Responsibility—for very obvious reasons. The OBR’s remit, as set out in clause 4, is to
“report on the sustainability of the public finances”.
That sustainability consists of tax, expenditure and growth. We are not saying that the OBR makes no implicit consideration of growth, but that growth needs to be made a much more central part of the information available for our deliberations.
Justine Greening
Clause 5(1) states:
“The Office has complete discretion in the performance of its duty under section 4”.
Does the hon. Gentleman think that that is somehow insufficient to provide the OBR with the absolute discretion it needs to do any analysis it wants to fulfil the main duty he mentioned?
Geraint Davies
Having complete discretion is useful, but the word discretion means that something remains a matter of discretion—these things do not have to be done. The OBR has the discretion to go around looking at whatever it likes, but the amendment is saying something different—that the centrepiece of our economic future is economic growth. That has belatedly been recognised by the Chancellor, as we will see in tomorrow’s Budget, when he will say, “I have done all the tax and spend, but, oh no, everything is going wrong because growth is going down the chute, so I had better belatedly do something about it.” The previous Government had sent us on a trajectory of positive growth, albeit that it was a fragile recovery after a financial crisis. The Chancellor has seen that we are going into negativity, so he has scratched his head and realised that growth has something to do with the public finances.
We have been lambasted by Conservative Members who say that the deficit is terrible and Labour left the cupboard bare. They conveniently forget that, as reported by all the economic forecasters, including the Institute for Fiscal Studies, two thirds of the £84 billion deficit came from the international financial crisis. That was not Labour’s fault. When Conservative Members suggest, “Oh, well, we should have had more regulation”, they seem to forget that when we created the Financial Services Authority to introduce more regulation, they said they wanted self-regulation and complained about red tape. In fact, it would have been much worse had it not been for the Labour Government. Furthermore, that regulatory hole in the armoury was commonplace across the globe. That is why Governments in Greece, America, Spain and elsewhere have had problems dealing with the financial deficits they inherited. Obviously, we were more vulnerable to sub-prime debt, as we know because the financial sector is larger in Britain.
Let us get away from the myths about why we have the deficit and deal with the challenge of how to get rid of it. We get rid of it by striking a proper balance between growth, making savings over time and ensuring that the bankers pay their fair share. It is convenient for the Conservatives to say that there is only one way of achieving the task. Instead of having a balanced approach to maximising growth, making the bankers pay their fair share and making credible savings that are realistic over time and would halve the deficit in four years, Conservative Members say, “No. We don’t want to halve the deficit in four years; we want to get rid of it in four years, and we do not want to use growth or involve the bankers. The bankers are our mates after all, so they can have some more money. What we will do is make the cuts twice as fast in just one way—through savaging public sector jobs and services.”
Then, remarkably, growth starts to recede so that the sums no longer add up, as there is obviously an interrelationship between private sector growth and public sector funding. Thus they suddenly realise that they have to do something about growth. The amendment is about recognising that the centrepiece of macro-economic planning and fiscal responsibility is growth. It is all very well for the Minister to say, “Oh well, the OBR will have absolute discretion; it can look at growth if it likes, but if it doesn’t want to, it doesn’t have to.” That is the problem; its eye is off the ball. We need to get the finances in proper balance without destroying communities, which is what Labour Members stand for.
Stewart Hosie
If I may take the hon. Gentleman back, he mentioned Greece and banking regulation. Can he explain to the House how the failure of Greek banking regulation had anything to do with the sovereign debt crisis, and what on earth the amendment, which is about a growth mandate, has to do with that?
Geraint Davies
I will try and speak more slowly. My point was that the international financial crisis affected all countries’ debt, not least that of Greece. Obviously, it has its own banking system, underneath the European Central Bank. There was a common cause for many of the deficit problems around the globe. It was not uniquely Labour’s fault, as the Government make out. The amendment seeks to clarify the factors that are generating the fiscal future, including growth.
Justine Greening
The hon. Gentleman keeps talking about the deficit as though it was something that descended upon us. The bottom line is that the UK had a structural deficit. That means that his Government were spending more money on public services than was being generated in taxation, even in the good years, so we were never going to be in a position to start paying off any of our debts, which is why the markets got so concerned about continuing to lend to us. That is a structural deficit, and it is a fact, even if the shadow Chancellor will not accept it, and that is why we have to have a deficit reduction plan in place.
Mr Deputy Speaker (Mr Nigel Evans)
Order. This is a fascinating debate, but not for today. If we could get back to the specifics of the amendments before us, perhaps we could make some progress.
Geraint Davies
I am grateful for your advice, Mr Deputy Speaker, and for the Minister’s intervention. In a way, her intervention makes the case for having growth at the centre of the OBR. I am sure that when she reads her words, which I appreciate were spoken with some emotion and anger, she will wish that she had picked them more carefully.
When we look at the facts and strip out the impact of the international financial crisis, which is about £84 billion in terms of our structural deficit, there was a residual deficit, to which the hon. Lady refers. There was an excess of expenditure over income, but that was taken into account in future planning. There was a savings plan from the previous Chancellor, as she knows, to cut the deficit in half in four years. That was not exclusively reliant on cutting public services and jobs. Rather, it relied on stimulating growth.
The OBR’s estimates of growth have been downgraded. Those higher levels—2.6%—would have provided more fuel to get the deficit down. I recall that the projected deficit in the pre-Budget report was £30 billion less than had been predicted previously. In other words, growth had been occurring faster than was thought. Now it is growing less fast—in fact, it is growing negatively.
Justine Greening
Just on the off-chance, I wonder whether the hon. Gentleman would be able to set out what the £14 billion of cuts were that his party was planning to start in April.
Mr Deputy Speaker (Mr Nigel Evans)
Order. We are going much wider than the amendments. Could we please confine our comments from now on to the amendments before us?
Geraint Davies
The point I was making before I was distracted was why there should be growth in the OBR. What were the previous Government’s plans to get the deficit down? That is what the hon. Lady asked. It is important to recognise that the plans that we had were largely growth plans, which will now not be taken up. I shall give one simple example.
The Government said, “We’ll cut some expenditure. We’ll cut the regional development agencies.” So there I was, going to speak to UK Trade and Industry which, as Members know, is the marketing operation for Britain abroad, about encouraging inward investment and trade with foreign countries. I was talking to UKTI in Germany, as it happens—
Geraint Davies
No, in Welsh. I was in Dusseldorf, talking on behalf of the Welsh Affairs Committee. This is relevant, Mr Deputy Speaker. UKTI had been marketing Britain, and various German companies had been saying, for example, “We want to invest in a food and drinks factory. We want these skills and this site, and ideally these grants and these communications.” That would have been put on a computer platform and pulled down by regional development agencies to encourage inward investment. I asked what was happening now, and was told, “All these bids are coming forward for creating jobs in the UK, and the RDAs are not pulling them down because they have been abolished.”
That is a simple example of how the cuts in administration and red tape are stopping quality jobs being created in Britain. The cuts undermine growth and are false economics. To answer the question about where we would cut the deficit, Labour would reduce the deficit by encouraging growth and jobs. I was talking to a business man last week in Swansea. He said, “I run a business. Why are the Government always talking about cuts? If I was making a loss and wanted to cut my costs, I would not sell my tools. Yes, I’d keep my costs down, but I’d invest in sales.” The Government’s position is like paying off the mortgage by selling the furniture, rather than getting a job. That is ludicrous.
That is why growth as the centrepiece of the Office for Budget Responsibility is so important. To release the entrepreneurial spirit and focus it on export-driven growth is the primary aim of Labour, but not of Government Members, who have let down business.
Stewart Hosie
I am trying to understand the amendment. To have a growth mandate in the OBR would have allowed it to explain precisely where the £57 billion of cuts every year under Labour from 2013-14 onwards would have come from. Is that correct? The growth mandate would have explained where the £57 billion of fiscal consolidation would have come from. Is that correct?
Chris Ruane
No. The hon. Member for Dundee East (Stewart Hosie) is listening too slowly.
Geraint Davies
There was never any suggestion that the OBR could miraculously conjure up the optimum strategy, which has not even been launched by the Opposition, to solve the deficit problem more effectively. The Government are struggling with a one-string bow. They said, “We’ll get the deficit down by sacking everyone quickly,” forgetting that that would grind growth into the ground. We need to evaluate the changes in policy and particularly cuts in growth-creating capacity.
The problem might not be RDAs. It might be that we are undermining the capacity of our universities to ensure that the most able students are not deterred from going and that they become future growth generators and entrepreneurs. It might be the failure to provide connectivity between industry and universities to ensure that good ideas are commercialised and that there are opportunities for clusters of SMEs around universities. There are lots of ideas that can be calibrated for their impact on the public accounts. This move is an attempt to refocus all our minds on the importance of engines for growth, instead of cutting the legs away from the players.
Stephen Williams
Given that the hon. Gentleman wants growth-led manufacturing and university clusters, does he welcome the announcement made last week by the Business Secretary and the Deputy Prime Minister of technology and innovation centres around the country, including the composites centre in Bristol?
Mr Deputy Speaker (Mr Nigel Evans)
Order. We seem to be skiing off-piste every time there is an intervention and trying to tempt Mr Davies on to territory that is not relevant to the amendment.
Geraint Davies
I am grateful for your guidance, Mr Deputy Speaker, because I would not want to be tempted in the least. I will resist temptation.
The focus of the amendment is very much on the important area of growth. As I have mentioned, the important opportunity is to refocus our entrepreneurial activity on export-driven growth. For example, in the Budget tomorrow the Chancellor might announce tax breaks for investment in small and medium-sized enterprises, which I would welcome. I do not think that he will, because he does not particularly care about SMEs; he will just say something about not giving mothers and fathers rights to see their children. The fact is that, with regard to the engines of growth, the liquidity has been taken out by the banks, which are just rebalancing their balance sheets. They should be pressurised into providing the fuel to allow the entrepreneurial engine to move forward, because so many companies have full balance sheets but no cash flow because the banks are letting them down.
It would also be a good idea to have a tax break for investment in SMEs in order to push things forward, as that way people could put in their own money and it would produce a better rate of return from the point of view of the business and venture capitalists. I do not think for one moment that the Chancellor will announce such a tax break—he does not have the imagination—but if he did, that could be factored into the growth figures for the OBR, because obviously the money we would spend on the tax break would be recovered from business growth, particularly if it was targeted at export-driven, high-quality manufacturing.
Andrew Bridgen
Does the hon. Gentleman believe that the OBR, had it existed before the financial crisis, would have been able to tell the previous Government that much of the growth they were claiming was actually a mirage? That growth was driven by a Government who were spending more than they were gaining in taxes and so creating a deficit. To pick up on a point made by the hon. Member for Bassetlaw (John Mann), they were also exporting manufacturing jobs to the far east and importing cheap goods, which was having a deflationary effect on our economy, allowing interest rates to be kept artificially low and feeding a housing bubble that was getting ever bigger. When it burst, that was when it all happened.
Geraint Davies
I am glad that the hon. Gentleman is wearing a badge saying that he has a GCSE in economics, but I doubt it.
On a serious point, I have already accepted that prior to the financial crisis there was a marginal deficit to be confronted, and it was going to be confronted through growth initiatives. We have since had the financial crisis, and the important thing now is to move forward with ideas for investing in growth. Clearly, there are big questions on tax and spend and where those will be deployed. Many new ideas might emerge in the Budget, such as a windfall tax on the energy giants, whose profit margins have suddenly increased by 38% because they did not adjust their prices when costs changed and so ripped off Britain’s consumers. That is obviously a legacy of the previous Conservative Government’s privatisation and the lack of controls.
There is money available to invest in growth and services and to close the deficit gap. The point about the amendment is that we must put growth centre stage, as that will enable us to move forward in a balanced way, rather than in the narrowly defined way that the Government prescribe. With those thoughts, I will give other Members the chance to make their own unique contributions.
Chris Evans (Islwyn) (Lab/Co-op)
After the epic speeches from my hon. Friends the Members for Bassetlaw (John Mann), for Swansea West (Geraint Davies) and for Edinburgh South (Ian Murray), I will keep my comments succinct and tight, and I will try to keep to the amendment.
The most important thing about the amendment is that growth is key and that there must be some plan for growth. It is all very well saying, as many Members have, that there is no plan B, but it seems to me that there is no plan A. There is no rationale for a plan A or a plan B. It is important to know what that rationale will be. We need to know how the Government reach their decisions.
I am going to say something quite shocking: I do not believe that the majority of people in this country care about the deficit. Government Members can call me a deficit denier all they want, but I believe that when people are sitting around their kitchen tables at night they are most concerned about their jobs, their borrowing, their mortgages and their houses. That is what keeps them awake at night, not the deficit. Yes, the deficit is important.
Chris Evans
Thank you for your advice, Mr Deputy Speaker—I have not been here very long.
Getting back to the amendment, it is important that we have the rationale for growth and know how the Government reach their decisions. We cannot talk about this in the microcosm of a dry subject of forecasts. We cannot debate forecasts in this House; we can only debate judgments on how the Government arrive at those policies.
Geraint Davies
The hon. Member for Nuneaton (Mr Jones) mentioned his children. Surely the important point about growth and the amendment is that if we invest in his children, in their education and in the opportunity to go cost-effectively to university, to add value and to promote future growth, that is the future they can look forward to. That is why his children are probably a bit disappointed that he supported the increase in tuition fees. Let us have growth.
Justine Greening
I am pleased to have the opportunity finally to respond to some of the points that have been made and to the amendments that have been tabled. It is important to say first that I very much welcome the contribution that Members not only in this House but in the other place have made to get the Bill to its current stage. Despite the debate we have had on growth, which of course is important, I think that there is broad support across the Chamber, as there was in the other place, for what the OBR is intended to do and for setting up such an office that can work effectively.
All the amendments relate to growth, so perhaps we have stared the debate that will no doubt continue tomorrow after the Budget. We believe that economic growth and job creation are absolutely vital, and Members will see tomorrow that that is a core part of the Budget. I agree with many of the comments that have been made about why we need to see growth as part of the Budget. I want to take the time to clarify some points that have been raised.
The debate so far has been about policy and strategy, but the OBR is not a policy-making body; it is there is look at the forecasting and produce the official forecast for the UK Government. It is precisely not intended to make policy. One of the things we have been very careful to do in setting out how the clauses and the charter work is ensure that the OBR’s independence, impartiality and transparency, which are also vital, are not compromised.
Geraint Davies
Having said that, will the hon. Lady accept that some of the OBR’s responsibility should be to forecast what it regards as the impact of policy changes from the Chancellor? For example, if he was to announce suddenly that he will let the private sector deliver public services so that entrepreneurial capacity will be taken out of export-driven growth and put into making easy money out of monopoly-provided public services, would it not be right for the OBR to say, “Hold on, that capacity has gone over there so our growth will go down”?
Justine Greening
I hope I can provide some clarification. The OBR has the freedom to consider the impact of policies on sustainable public finances, including employment policies. If the hon. Gentleman looks at some of the forecasts the OBR has already made, he will see forecasts for employment, average earnings, ILO unemployment, the percentage of the claimant count and, of course, growth. Hon. Members talked about the OBR’s assessment of growth and what it will show over the coming years. The OBR is already producing an awful lot of the analysis that hon. Members want to see, but it is fair to say that today’s debate will—I hope—be of interest to the OBR in understanding what information and analysis it might feel it needs to provide to convey what it wants to, which is some assessment of the economic growth forecast for this country.
Let us be clear that the duty of the OBR is very clear and is set out in clause 4. It should examine and report on the sustainability of public finances but, as hon. Members have said, Government policy clearly impacts on that. By definition, the OBR will consider how policy impacts on the sustainability of public finances.
Geraint Davies
In conversation with the Institute for Fiscal Studies, I asked various questions about growth and its calculations and it was pointed out to me that the IFS was in essence made up of micro-economists who were aggregating up to deliver predictions about Government fiscal outputs. I respect what the hon. Lady is saying, but it seems to me that she is basically saying that the OBR will be doing something very similar. It is very easy to make such predictions if we say, “Assuming that everybody is still employed, that we have taxed them this and that they spend that, this will happen.” What is more difficult is to model the impact of individual policies in a Budget on growth and hence on the public finances. The hon. Lady is giving us some reassurances, but I think the point of our amendment was to push her to say that this would become a priority for the OBR so that we could have a richer understanding of the growth scenarios in the future. I appreciate that some of that is done, but we want more.
Justine Greening
Ultimately, a key clause—I think clause 5—sets out that it is at the OBR’s discretion to decide how to carry out its duty. A fundamental building block of the OBR’s credibility is its independence. I assure the hon. Gentleman that the risks he mentions, such as the concern that the OBR might not carry out robust analysis, are mitigated by other safeguards in the Bill. For example, one duty of the OBR will be to produce a report on the accuracy and robustness of its forecasting. As he will be aware, there are also non-executive directors who will be there on a day-to-day basis to challenge how effectively the OBR works and every five years, at a minimum, there will have to be a completely external peer review of the OBR’s workings.
I think we have managed to strike a balance by setting up the OBR in the way I have described—on the one hand by giving it independence, so it has that key element of credibility, and on the other by including some safeguards, in terms of its structure, its management and the review, so that, if for some reason it does not produce the quality of forecast that we need, those safeguards will be in place to ensure that we tackle the issue. Let us not forget that the OBR is accountable not just to Parliament, but to the Chancellor, because it produces the official forecasts.
Finally, amendment 4 suggests another new related role for the OBR, which as we have heard would be to assess the Government’s growth mandate. As I said in response to amendment 1, the Government seek to achieve their economic policy objectives through a range of policy tools and frameworks, not just through fiscal policy, but the OBR has been established to increase the credibility of the Government’s economic and fiscal forecasts and to hold the Government to account for their economic and fiscal policies.
That highly valuable role is recognised by a wide range of domestic and international commentators. The hon. Member for Swansea West mentioned the Institute for Fiscal Studies, and it warmly welcomed the establishment of the OBR, which, through its role, has already provided forecasts of key economic variables. In its November report, the OBR set out forecasts for the next five years, covering a range of key macro-economic variables, such as GDP and its forecast growth, inflation, employment, average earnings, unemployment and the output gap. In addition, the OBR will have the freedom to consider the impact of Government policy on economic growth and employment within our regions and nations, and in line with its main duty. I therefore consider all the amendments to be unnecessary, and I hope I have addressed the issues that hon. Members have raised.
Fuel Prices and the Cost of Living
Geraint Davies Excerpts(13 years, 1 month ago)
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Justine Greening
And a huge fiscal deficit and debt to boot, so we will take no lectures from the Labour party. Perhaps the hon. Gentleman can discuss with the shadow Chancellor how he thinks the huge deficit that his party left our country—it costs us £120 million a day to service our debt interest—should be addressed. The elephant in the room, which we have not talked about so far today because it is not in the Opposition’s motion, is how they would tackle the deficit. The answer is that they would not tackle it, which is why it is so lucky that Labour is not in government at the moment.
Banking
Geraint Davies Excerpts(13 years, 2 months ago)
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Mr Osborne
First, on transparency, at the moment we have a voluntary commitment by the largest British banks, and we are going to turn that into a legislative requirement on all the major banks operating in the UK. We will bring forward proposals over the coming year to consult on that, as we have to do under the statutory procedures, but my intention has been made clear.
Bank charges and so on are properly not a responsibility of the Bank of England at the moment. It is going to focus on collecting the numbers. However, we are creating a strong consumer protection and markets authority—there will be legislation before the House on that, and a very good chief executive-designate has been hired. He will ensure that the customer gets a fair deal as well.
Geraint Davies (Swansea West) (Lab/Co-op)
Will the Chancellor put a cap on the value of the shares that bank executives give themselves as bonuses, or will shares now be seen as a Trojan horse for bankers to give themselves still greater bonuses in future?
Mr Osborne
As I have explained, bonuses are actually going to be lower this year than they were in the last year of the Labour Government, who had an opportunity to do something about them.
Yes, bonuses will increasingly be paid in shares, and for a very good reason—so that when the bank goes bust, people will not walk away with a huge payment. We remember not just Fred Goodwin’s knighthood but the pension that the Labour party awarded him. It was completely unable to deal with the fact that the bankers in the banks that went bust walked away with their money. One of the reasons for paying bonuses in shares, and why we have introduced the code, is so that the bankers, too, will pay a price if the bank in which they are involved fails.
Oral Answers to Questions
Geraint Davies Excerpts(13 years, 3 months ago)
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Justine Greening
What it shows is that we have the right plan to get our economy back on track. My hon. Friend mentions the purchasing managers index for January, which was at a record high since the series began in 1992. We recognise that our road to recovery will still be choppy, which is one reason why we will bring forward the first phase of the growth review in the Budget that is coming up. That will examine how we can ensure that we create the conditions for our companies to be successful.
Geraint Davies (Swansea West) (Lab/Co-op)
Does the Economic Secretary agree with the Institute for Fiscal Studies that the new patent box tax, reducing the patent tax from 28% to 10%, does nothing for new jobs or research and development, and that in fact the Pfizer case, with the loss of 2,300 jobs in Sandwich, is a case in point? It shows that she is doing nothing for modern manufacturing and that choking growth and increasing inflation through VAT is increasing the deficit, not decreasing it.
Justine Greening
It is hard not to point out to the hon. Gentleman that his party supported the patent box when it was in government. It is not just that policy that will support high-tech manufacturing. Our policies of reducing corporation tax year on year rather than having it go up, and of reducing national insurance and getting rid of the worst impacts of the jobs tax that was making it harder for companies to keep people employed, will support growth in the economy. His party simply has no idea how to start making that happen.
Autumn Forecast
Geraint Davies Excerpts(13 years, 5 months ago)
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Mr Osborne
Since the Government were created there has been an absolute focus in foreign policy and trade policy on trying to increase our exports to those BRIC countries. The Prime Minister led major trade missions to India and China, the Business Secretary was very recently in Russia and I think that a trip is being proposed for Brazil, so we are seeking to expand our exports to the BRIC countries and, indeed, to some other important emerging economies such as Indonesia, Turkey and so on. We do not want to export less to southern Ireland or to anyone else in the advanced world; we just want to increase our exports to emerging economies.
Geraint Davies (Swansea West) (Lab/Co-op)
We know that the deficit is the price that has been paid to avoid a depression—a price that the Chancellor would not have paid. To reduce the deficit, will he consider using three methods: first and foremost, a proper jobs and growth strategy; secondly, fair and progressive taxation; and, thirdly, savings over a greater period, instead of simply casting half a million public sector workers on to the dole, triggering the unemployment of another 1 million private sector workers and ending up with the unfair, unnecessary and failed policies of the Conservative past?
Mr Osborne
That was a complete load of nonsense. The independent forecast shows that we are projected to create 1 million jobs, and that the economy will grow more quickly over the next couple of years than the economies of most of our European competitors. Frankly, we inherited from the previous Government an absolutely catastrophic situation in which people called into question Britain’s ability to pay its way in the world. That was the situation we inherited, but I think we have done many things in the past six months to ensure that the British economy is now on the mend.
National Insurance Contributions Bill
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Michael Fallon (Sevenoaks) (Con)
I am not alone in finding that a rather disappointing response—an untypically disappointing response. Part 2 of the Bill introduces something that the Labour Government never introduced in their 13 years in power, yet the minute we introduce it, they say: “Well, it doesn’t really go far enough”. We have heard 25 minutes of “We want a better Bill, but we never backed it”. Labour has still not proposed to make this provision part of its own policy, yet it wants it extended to other parts of the country.
Unlike the Labour party I welcome part 2, comprising clauses 4 to 11, just as I welcome any reduction in the burden of taxation on small businesses, even if it is described—rather unfortunately, I think—as a “holiday”. Only in the weird and wonderful world of Her Majesty’s Revenue and Customs could the process of allowing a business to keep more of its own income and turnover be described as some sort of holiday. I rather regret that this phrase has now crept into the legislation. Small businesses pay too much tax, so anything we can do to reduce that burden has to be helpful. Why? Because the bulk of private sector job creation has come, and will continue to come, from small companies. Sadly, it is large companies that continue to reduce their costs, to strip out unnecessary manpower and to outsource various functions, while it is small businesses that have been, and will be, the engine of job creation.
Geraint Davies (Swansea West) (Lab/Co-op)
Is not the main engine for job growth among small and medium-sized enterprises the expansion of existing SMEs rather than the creation of new ones, although of course that is an important engine as well? Does the hon. Gentleman favour the extension of the measure to new employees of existing SMEs? As he may know, and as I know from personal experience, starting a business involves a number of risks, and obviously this is one of the factors. An established SME could probably do much more with the “holiday”.
Michael Fallon
I was about to suggest that the measure might well be extended. It is true that job creation comes from existing small businesses, although it also comes from new ones. I think that we can find some common ground in that regard.
I have three main reasons for supporting the Bill. First, I believe that it is the right way to help small businesses. It is not the only way, but I do not think that the other ways that have been tried in the past—grants, loans, business link services, and a great deal of bureaucracy—are nearly as effective as allowing small businesses to keep more of their own money, and to employ more people more cheaply. Given that a Government cannot create jobs, this is the easiest, simplest and most effective way of encouraging businesses to take on more people.
My second reason for supporting the Bill, which is directly relevant to the intervention from the hon. Member for Swansea West (Geraint Davies), is that it is clearly future-proof. I note that the Opposition do not oppose it, either in principle or in detail; indeed, they want to extend its provisions throughout the country. If it turned out to be spectacularly successful—and none of us in the House knows yet whether it will—its provisions could be extended. At present, the scheme applies only for the first year of a new business, it is open for only three years, it applies only to the first 10 employees, and it applies only to the regions that we have been discussing.
If we discovered that the Bill really did encourage the creation of more jobs and did not divert employment from existing businesses, it would be perfectly possible—once the economy had recovered, we had closed off the deficit that we inherited, and more money was available—to extend the scheme in different ways. It would be possible, for example, to apply it to the first two years of a business. It can take longer than a year for a very small business to establish itself. It would be possible to keep the scheme open for the whole of the current Parliament, matching the reductions that are sadly necessary in public sector employment to encourage private sector employment alongside it. It would also be possible to apply it not simply to the first 10 employees but to, say, the first 20 or 30. I see nothing particularly magical about the step change involved in employing that 11th person. And yes, if the scheme really was working, it might well prove desirable and cost-effective to start extending it to some of the other regions. I note that the three excluded regions contain the south-east—my own region—East Anglia and London, which currently contain half the number of all our small businesses. If small businesses had already been successful in those regions, perhaps, if costs allowed, it might be possible to extend the scheme in four or five years’ time if it worked particularly well.
Oral Answers to Questions
Geraint Davies Excerpts(13 years, 5 months ago)
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Justine Greening
My hon. Friend is right. In quarter two alone, private sector employment grew by 308,000. I believe that many people in the country want not just to take jobs, but to create them. I would encourage them to get on with it, and to pursue their dreams and aspirations. They will have a Government behind them who are giving them a national insurance holiday for the jobs that they will create, and who are determined to support them by keeping corporation tax rates low when they are successful.
Geraint Davies (Swansea West) (Lab/Co-op)
Given that Government plans to cut half a million public sector jobs are expected to lead to the cutting of a further 1 million private sector jobs, does the Minister accept that it would be more effective to reduce the deficit in three ways—through progressive taxation, through economic growth and through savings—than simply to throw millions of people on to the dole and whole communities into poverty?
Justine Greening
The hon. Gentleman seems to have managed to get from a reduction of half a million in the public sector head count to millions on the dole. The number that he cited is in the independent report from the Office for Budget Responsibility, which was published after our emergency Budget. Although the report showed that there would be a reduction in the public sector head count of about 490,000, it also showed—and I assume that the hon. Gentleman accepts all of it—that there would be an increase in employment of 1.6 million, and that, year on year, there would be reductions in unemployment and increases in employment. If he accepts the figure of half a million, does he also accept those figures?
Finance (No.2) Bill
Geraint Davies Excerpts(13 years, 6 months ago)
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Mr Umunna
I do not usually ask my friends and acquaintances whether they share financial information with their partners, but I hear the comments of the hon. Gentleman.
My second point is, how will it be possible to prove the connection between the mother and the higher rate taxpayer, bearing in mind the problems that we have been having at Her Majesty’s Revenue and Customs? Given that HMRC’s resources have been cut over the past few years, how will it be able to keep tabs on the situation between couples on a monthly basis? As some 1.2 million families will be affected by the new measure, will HMRC be given any more funding to enable it to enforce the new change and to keep tabs on what is happening out there in the nation?
Finally, John Whiting, joint interim head of the Office of Tax Simplification, has obviously commented on the problems of the new measure, but what is the point in setting up such an office when the people working within it and those heading it up have not been properly consulted or asked to advise on this measure? Surely, if the Government are not minded to accept this new clause, it would be a good idea to delay the introduction of this measure and ask the Office of Tax Simplification to do its job and advise on how it can be more efficiently introduced.
Geraint Davies (Swansea West) (Lab/Co-op)
My hon. Friend makes a powerful case to look again at the detail. Does he agree that if the objective was to be fair and to put the burden on to the broadest shoulders, surely it would have been better to raise the marginal rate of tax from 40% to 41% , so that the people who have more pay more, and not just clobber people with children, who now have to pay more for their children. Those are couples, only one of whom might be working, where the 40% does not signal the best-off households.
Mr Umunna
No doubt the Government will consider my hon. Friend’s interesting suggestion and comment accordingly.
One of the main problems with the new measure is that people fall off a cliff edge when they hit the higher rate. Have the Government considered introducing a taper mechanism to prevent that anomaly from occurring, because obviously that is where the unfairness shines through?
Mr Gauke
The hon. Gentleman asks a fair question, but I will not give him a precise number because that is something that we continue to consider. The implementation of any policy clearly involves a cost, but I assure him that this cost will be small when compared with £2.5 billion. I am keen to ensure that the policy does not place an undue burden on HMRC. He made a fair point about HMRC. It faces a budget reduction, even though the Government are protecting it by ensuring that it has more resources to tackle evasion and avoidance, but we are keen to ensure that the burden of administering the policy will not cause it undue difficulty.
We have to take tough decisions and make tough choices, and this is one of the decisions that the Government have taken because we believe it is the right thing to do. We do not think it is fair to tax people on low incomes to pay for the child benefit of those earning much more. We cannot afford to continue providing financial support through child benefit to better-off households where there is a higher rate taxpayer. From January 2013, the Government will therefore withdraw child benefit from families that contain a higher rate taxpayer. Despite the noises from the Opposition, the British people understand that this is a tough, but fair, decision.
Geraint Davies
Can the Minister explain why the proposal to tax higher rate taxpayers in that way was made and announced before the comprehensive spending review? I put it to him that the reason for that was to warm up the audience and to make out that the comprehensive spending review would be fair and balanced, as opposed to the IFS’s conclusion that it hit the poor two and a half times as much as it hit the rich. Was not the timing of the announcement entirely cynical?
Mr Gauke
The policy underlines the fact that the Government are looking to address our deficit in a way that is fair, and to ensure that all parts of society play their part and those with the broadest shoulders make the biggest contribution. That is what we are doing. It is remarkable that it is Opposition Members who appear to be trying to prevent that happening, though I am not sure whether they object to the way in which it is being done or whether they intend to fight in the last ditch to defend the principle of universality as it applies to child benefit.
We wanted to avoid creating a complex new means test for household income. To do so would fundamentally change the nature of child benefit and come at a significant cost to the taxpayer. This policy has therefore been designed to avoid affecting the vast majority of the population—some 80%—who are basic rate taxpayers. It also avoids additional systems being developed, as the measure can be delivered within existing pay-as-you-earn and self-assessment systems.
Let me deal with the issue behind the new clause—the principle of independent taxation, which was introduced in the Finance Act 1988. It is a great pleasure to hear Opposition Members applauding the 1988 Budget. If I remember rightly, proceedings in this place at the time were interrupted as the Chancellor of the Exchequer was shouted down by some Opposition Members. Section 32 abolished the provision that a wife’s income was income of her husband for income tax purposes. That remains the case, and none of the proposed changes to child benefit alters it.
Child benefit is provided for a child within a family and it is therefore necessary to consider the family as a group. The policy merely withdraws child benefit from a family to whom it is difficult to justify paying it. Furthermore, the withdrawal of child benefit from families containing a higher rate taxpayer will not affect the personal allowance or rate band applicable to an individual. The changes apply a simple test to ensure that child benefit is not provided to those who need it the least.
Of course, the House will have the full opportunity to debate the changes to child benefit when they are legislated, ahead of implementation in January 2013. That would be a better time to discuss the various specific issues that have been raised in the course of the debate. Although I understand that Opposition Members may wish to draw a link between child benefit and independent taxation in order to have this debate today, it is clear that the two systems remain separate and independent.
Geraint Davies
In my constituency, my hon. Friend’s constituency and throughout the country, there are women who do not earn any money but live in a household with a partner, receive child benefit and spend the money on their children. In the light of their uncertainty about the future, given what we all know about the divorce rates, those women are critically concerned that the hand of government will suddenly come in and snatch that money from them or their children because of what the man earns. The Bill is clearly an infringement of independent taxation and an attack on children and mothers.
Chris Leslie
My hon. Friend highlights the fact that I cannot see this being the end of the matter. The Minister suggests that the measure is part of the Government’s carefully calculated spending commitments, but I do not think that they will continue with the plan. There are so many anomalies and problems in its design and operation that they clearly did not think it through properly. They might have looked at the ready reckoner, saying “Oh yes” as they licked their lips at the £2.5 billion that they could take from families, and went straight to the first day of the Conservative party conference to announce their proposal, but it is unravelling by the moment.
The Institute for Fiscal Studies and others are starting to highlight the economic perversities and distorting effect of this measure. Even the sole issue of independent taxation is sufficient to hole below the waterline the Government’s plans to tax child benefit. I therefore hope that we can divide the House on the new clause.
Question put, That the clause be read a Second time.
Finance Bill
Geraint Davies Excerpts(13 years, 9 months ago)
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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.
The First Deputy Chairman
Order. Just before that happens, can we please restrict ourselves to the Bill and the amendments to it?
Geraint Davies
I shall bear that in mind. My hon. Friend will know that I had a previous responsibility for adapting Wales to climate change in terms of flood defences, and he will be interested to know that there are literally—
The First Deputy Chairman
Order. That is much wider than what we are discussing today.
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.
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.
Geraint Davies
In terms of the public finances, £3.6 billion is a massive amount to be raised in a very tight period, so given that there is so much uncertainty and change around the Government’s proposals, does my hon. Friend accept that they present an enormous risk? From the viewpoint of the industry, it appears that the Government are playing fast and loose and are undermining the confidence of the financial markets and credit rating organisations in their capability to manage our economy or their finances.
Ms Eagle
My hon. Friend raises an extremely important point and I obviously look forward to the contribution that he will make to our debate in due course. If he looks at the amendment he will see that the point of it is to try to get more detail about what is in the Government’s mind. The time scale for putting the provisions in place is extremely short in relation to the beginning of the new financial year—a point to which I shall return.
The amendment would provide that an order that completely repealed all the paving legislation and all the work to put into effect the higher earnings charge would not be allowed until Parliament has more idea of at least the outline for the proposed replacement arrangements. There are some coy little hints in the Red Book but not much else to go on—certainly no detail—if we are to repeal an already organised charge that has been well consulted on. The amendment also provides for a distributional analysis to show
“the likely impact of the proposed replacement arrangement; and…the revenue implications of the proposed replacement arrangement.”
I accept that the Government have said that they want to replicate the yield, but as my hon. Friend correctly pointed out, the yield is not an insubstantial amount and it rises quickly. In the tax year 2012-13, a yield of fully £3.6 billion for the replacement measure is already on the Budget scorecard.
The planned yield is a considerable sum and the Government need to reassure us that they are not putting it at risk by ripping up all the work that has been done to implement the original policy since it was announced in 2009. There are clear dangers in destroying all that work, wiping it off the statute book and starting again from scratch so close to when the change is meant to come in, not least because of the tight time scales as we approach the start of the financial year 2011-12, when collection of the revenue is meant to begin. The Red Book states:
“The Government wishes to engage employers, pension schemes, experts and other interested parties to determine the best design of a regime.”
That does not fill me with confidence that the Government have the first clue about how their policy intent can be changed into an actual tax change. It is a complex area and they have only a small period to get the measure right.
I assume that the powers will have to be legislated for in the September Finance Bill; perhaps the Economic Secretary can tell me when she replies to the debate. There is not much time—probably only the summer—so I hope she will have a holiday, but I am not sure quite how that will turn out if she is put in charge of sorting out the proposals in an appropriate time. Her officials could get no break at all. To be honest, as they contemplate their second or third Finance Bill of the year, her officials will probably need a break as much as she does. While there is not a lot of time left, there is an awful lot of yield at stake if the Government get this wrong, and that is what we are exploring through amendment 60.
Ms Eagle
There are issues of process on which I would appreciate the hon. Lady’s enlightenment in her response to the debate.
There is also an issue about the backstop position. The hon. Lady says that draft clauses might be brought forward, and, although I am sorry to go on about process, it is important when it comes to tax changes. We gave ourselves close to two years to do all the work to introduce the higher rate relief charge, because it was such a difficult and complex area. We wanted to ensure that those who were liable to pay had plenty of time to plan, understand their liabilities—even if they did not like them, which they rarely do in my experience—and get to know the system, so that there was certainty about it. It now seems clear that there is a degree of uncertainty, which those who would have been particularly badly hit by the high charges, the very richest in our society, might welcome. However, we felt that they should shoulder a fairer burden of the necessary fiscal consolidation, because they had done so well during the good times.
If the Government are serious about protecting the yield, there has to be a trade-off with fairness. The Government have hinted at using the annual allowances as a way of raising that money, rather than our way, and if they introduce that change those on incomes of less than £130,000 will be dragged into the tax net. We wished to avoid that with our solution, so, if the reduction in annual allowances that the Government are considering turns out to be their final decision, in response to the debate will the hon. Lady tell us how many people it will affect? The Government have hinted that that is their preferred way, but our amendment would ensure a distributional analysis of the measure’s effect. Given that we legislated for a particular approach to raising that yield, and given that the Treasury did a great deal of work on developing that system, it would be entirely appropriate for the Treasury to produce some comparisons between that and the preferred approach at which the hon. Lady and, certainly, the Red Book have hinted. How great will the sudden tax liability be of people who earned less than £130,000 a year and would not have been affected had our approach to raising the yield gone ahead? How low down the income scale will the restrictions on tax relief go?
Geraint Davies
For clarity, does my hon. Friend agree that the Government’s proposal consists of a multi-billion-pound giveaway for the richest 2% of people in this country at a time when the rest of the country faces massive financial penalties due to the actions of international bankers? Those very bankers will be given the extra bonus by this Government, and that is an absolute disgrace.
Ms Eagle
Again, my hon. Friend makes an important point in his characteristically acerbic way. I was going to ask the Minister, in a slightly more polite way, how much of the income that the very richest would have paid will now be paid, under the new plans, by those on lower incomes. I hope she can give us that figure.
The key issue with annual investment allowances is that they drag people into paying the extra tax regardless of income. For example, a modest earner might receive a bequest from a deceased relative and make a big payment into a pension, and under our system they would have been able to pay in up to £225,000 without incurring tax. Alternatively, a modest earner might receive a redundancy payment and wish to put it away, and we clearly want to encourage that if they do not have a pension. If the hon. Lady’s system is to be of the sort hinted at in the Red Book, that person would be much more affected, regardless of their ordinary income; they would be deterred from putting anything other than the annual investment allowance into a pension fund because of the nature of the tax. I hope she will at least admit that that is an implication. Has she any numbers that relate to this issue?
Geraint Davies
It is a great pleasure to follow my hon. Friend the Member for North Durham (Mr Jones), who puts his finger on one of the key points. Obviously, the previous Government were attempting to raise £3.6 billion to tackle the budget deficit. They targeted the top 2% of people—those earning more than £150,000, including employer contributions. Those people anticipated that increase and budgeted for it and now, in the ashes of the economic downturn imported from the United States, the impact of raising the £3.6 billion is being spread across a much wider pool—10% of the people.
As has already been said, the suggestion that we are all in it together rings hollow. Public sector workers are on pay freezes and the incomes from their pensions, like those from private sector pensions, will be reduced by 16% over 20 years through the other change that has been mentioned—the link to the consumer prices index. On top of all that, the tide of the £3.6 billion will break over them. The impact will be great, and I very much regret it.
Mr Kevan Jones
Does my hon. Friend also agree that the 2% of taxpayers who will get the £3.6 billion cash give-away are also in a position to take tax and accountancy advice, which could reduce their tax liabilities? That will not be open to pensioners who are paying the VAT increases or the public sector workers to whom he referred.
Geraint Davies
My hon. Friend is right. The status quo proposal of getting the £3.6 billion from the top 2% was based on standing back and considering whether there should be greater tax relief for those who are already the richest. The answer was no. At difficult times, those with the broadest shoulders should bear the greatest burden, but now, the burden is being taken from them and placed on much weaker consumers. That will undermine the attractiveness of pension schemes among larger numbers in middle income groups.
In essence, the proposal is to reduce the tax allowance from £255,000 a year to some £30,000 to £45,000. That creates an enormous difference in how many and which people are captured, and generates great anxiety in the industry—the providers that it represents and consumers whom it serves.
Justine Greening
May I confirm that I have understood what the hon. Gentleman prefers? Would he rather have tax relief at 20% for people who can afford to pay up to £250,000 into a pension fund in one year?
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?
Geraint Davies
I certainly do not think that the Government can be trusted but, more importantly, do the industry, consumers and the wider financial community trust them to get their ducks in a row and recover the £3.6 billion? Much was made of the Chancellor saying, “We’ve got to get all this money and get the deficit down, otherwise we might be re-rated,” but suddenly we do not know where a key component of that—£3.6 billion—is coming from.
I mentioned that there will be a discussion group of stakeholders in the summer. The previous Labour Government considered reducing the annual allowance and all the other options. It is on the record in Hansard that the annual allowance proposal was rejected partly because it was less well targeted—as has been said, we wanted to focus on those who are able to pay most easily and without great pain rather than make the weakest pay more—and partly because of its complexity.
Another key point I wanted to make—I do not think it has been made clearly enough—is that primary legislation is necessary to reduce the annual allowance. The proposal in the Bill is half-baked. It gets rid of a system of gathering £3.6 billion and the Government are incapable of replacing it with an alternative. I object to the clause not just because of the discussion with stakeholders and the uncertainty, but specifically because section 282(2) of the Finance Act 2004 states that the annual allowance set by Treasury order must not be less than the preceding year. Given that the allowance is £255,000, it cannot suddenly become £30,000 to £45,000 without changing that legislation. Such a measure is not included in the Bill, which is another indication of how half-cocked the proposals are. We are discussing a Finance Bill now, but we would need another one before April 2011 to change that allowance. The proposal is incomplete and will mean uncertainty; it demonstrates ineptitude and incompetence; and it undermines confidence among industry providers and consumers. After all, we want more people to save with certainty, so that they have comfort rather than hardship in what we hope will be their long and happy retirements. This will undermine those prospects. People will be less likely to subscribe to sensible, robust pension schemes for the future.
The Government are giving themselves the power to repeal primary legislation by order without knowing exactly what will be put in its place. That is a half-baked approach. Amendment 60 calls for an analysis of “the likely impact”. I tabled an amendment that was not selected, but it simply suggested that this clause should be scrapped. We have looked at the issue, and we know what the distributional impact will be, albeit not in detail. We know that the rich will be let off the hook, and more widely it will cause massive uncertainty about the future. There may also be a question mark over whether we can fulfil our financial obligations as set out in the Budget.
Towers Watson, which is a leading consultant on pensions, says that lowering the annual allowance to £30,000 would lead to tax charges for long-serving final salary scheme members. That means that employers would pull the plug on such schemes. That is not my claim, but that of industry experts. We have already seen across British industry the loss of reliable and robust final salary schemes. Towers Watson says that the changes will undermine final salary schemes because they will not be as useful in retaining staff if they have a tax bill attached. The Minister has not thought this through. If big employers have these final salary schemes, their staff stay with the company because they know that each year they gain a little more benefit, instead of going to a predatory competitor company.
Towers Watson argues that the Government can either introduce a simple system or a fair system, but not both. A rough and ready approach was fine when a few were worried about the annual allowance, but the Government’s proposals would have an impact on hundreds of thousands of people. All the stakeholders will be running around wondering what the changes will mean for them and providers will wonder whether they should provide a different scheme. I mentioned KPMG before, and I will not go through all the consultants in terms of their support for my position, but KPMG says that the number of pension savers affected has widened from 2% to 10%. PricewaterhouseCoopers says that the level will need to be £30,000—as opposed to £30,000 to £45,000—to raise the £3.6 billion needed. The movement from £255,000 to £30,000 is a radical change and we are still consulting on it.
PricewaterhouseCoopers says:
“Employers need certainty over the regulatory framework for pensions if they are to be remotivated to provide quality workplace pensions.”
The Government’s proposals are unfair, unclear, half-baked, fast and loose and a massive new multi-million pound bankers’ bonus to pay back many of the people who put us in this mess in the first place. They are disgraceful and should be withdrawn.
Sammy Wilson
I have only a few points to make. The Conservative party’s fortunes or misfortunes do not really affect us in Northern Ireland so I am not seeking to score political points or to say that the Tories are bad people, even though they may be considered to be so by many people. However, the basic issue that hits everyone in the face in considering this measure is how it sits with the claim by the Government that the Budget is fair.
Oral Answers to Questions
Geraint Davies Excerpts(13 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Geraint Davies (Swansea West) (Lab/Co-op)
Can the Chief Secretary tell the House whether he thinks it is completely ethical for the definition of “unemployment” to be changed just before Prime Minister’s Question Time and for that be made public without telling the media that that was the case? Would he comment on the fact that the person who did this was seconded from a hedge fund and is therefore not independent? Will the Chief Secretary therefore confirm that that was the reason why this person had to resign and bring scorn—
Mr Speaker
Order. I must limit the hon. Gentleman to two questions—one answer will suffice.