Capital Gains Tax (Rates)

Jacob Rees-Mogg Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Darling]

No, I think I have dealt with that point.

There will be some people who argue that the private sector would see faster growth and job creation if there was a swift consolidation that supported looser monetary policy. However, with inflation down, interest rates at 0.5% and bond yields coming down—they were coming down before the election, as well as after it—there is no evidence of suppressed private sector demand, so that argument does not stack up. I am concerned that we may see a situation when there are not the right conditions or the right confidence to bring forward business investment. I am happy to welcome the proposed reduction in corporation tax rates and other business help, but what governs whether businesses come forward with investment is whether they are confident that the economy is going to be growing so that people will buy their goods and services. That is what I am concerned about.

I am also concerned that the Office for Budget Responsibility forecast shows employment taking a hit of about 100,000 compared with what we had forecast previously. The Chartered Institute of Personnel and Development foresees unemployment rising and sticking around 3 million for this entire Parliament. The history of Japan in the 1990s—and, indeed, our own history back in the 1930s—provides a lesson in what happens if we get all this wrong. Wherever we sit in this House, we should all be concerned about rising and persistent unemployment. Not only is it an economic waste; it is also a social catastrophe, as we have seen on many occasions.

[Jacob Rees-Mogg (North East Somerset) (Con)]

rose—

[Mr Darling]

I shall give way to the hon. Gentleman, not least because I had the pleasure of visiting what is now his constituency during the election campaign, and I can see that my contribution there did not quite work out.

[Jacob Rees-Mogg]

I thank the right hon. Gentleman for giving way—and, indeed, for visiting North East Somerset, where he will be welcome again. He has mentioned Japan, and what Japan got wrong. What it got wrong was massive overspending, as a result of which it is now forecast to have a debt to GDP ratio of 246%. Surely that overspending is exactly what we need to avoid.

[Mr Darling]

What Japan got wrong was snuffing out a recovery at a very early stage and never really getting over it. As the hon. Gentleman knows, the Japanese have had complete stagnation for a long period now. The debt is just going up and up, and understandably they are very concerned about it. The new Prime Minister was the finance Minister until a few weeks ago, and understandably, he has huge problems on his hands.

The tests we need to apply to the Budget relate to growth and jobs, which I remain very concerned about; there is a substantial risk there, and I would like to have heard more said about policies to promote growth so that we do not end up with years of very sluggish growth at best or, even worse, bumping along the bottom for some years.

I have said that one of the tests that needs to be applied to this Budget is its fairness and another relates to the promises made about it before the election. Where better to start, then, than with VAT? During the election there was a lot of discussion about that. The Conservatives, like ourselves, said that they had no plans to raise VAT. I remember having a discussion with the Chancellor when he announced his plans not to go ahead with at least some of the national insurance increases, and he said that he would fund that from efficiency savings. I remember saying that I thought that was highly doubtful, and that they would have to raise money from another big tax. Sure enough, VAT is going up.

Interestingly, for some reason, not much was said about efficiencies yesterday, although they loomed very large during the election. We now know that “no plans” on the Tory side meant exactly what Geoffrey Howe said in 1979 when he said he had “no intention” of doubling VAT. Of course he was factually right, as it only went up from 8% to 15%. It was the same with John Major when he was Prime Minister in 1992, and said he had “no plans” to raise “extra resources from VAT”: of course, VAT went up. Even last year, the Prime Minister said in opposition that putting up VAT was regressive. He said:

“You could try, as you say, put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you.”

I assume he was not absolutely promising to do that, but was trying to point out to the questioner that he thought that VAT was regressive. Yet here we have it—VAT going up to 20%, as I always suspected would happen.

What I find even more curious is how on earth the Business Secretary can back this proposal. He cannot have been unaware of the Liberal campaign which spent two days dealing with the “Tory VAT bombshell”. We saw the posters all over the country. They said a Tory Government would come up with “a secret VAT bombshell”, but the only secret appears to be that the Liberals intended to vote for it when it was introduced. The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is no longer in his place, said last week that he thought VAT was

“the most regressive form of tax”

in that it “penalises the poor”. When the Business Secretary said during the election that he would

“hardwire fairness back into national life”,

did he have this in mind?

I see that there are, wisely, only four Liberal Democrats in the House at the moment; the others are no doubt explaining to their constituents why it is that when they said, “Vote for us and keep the Tories out,” they completely misunderstood the position. It seems to me that this is not just a broken promise, as there are real issues at stake. I was criticised for what I did with national insurance, but I wanted to ensure that pensioners would not have to pay the increased tax and I wanted to protect people earning less than £20,000—of course, that has not happened.

--- Later in debate ---

[Huw Irranca-Davies]

I thank the hon. Gentleman for his reassurance, but I will be reassured when I see the detail. I will be reassured when I see that this policy will not have the impacts that I have just laid out. We are privileged to be here and to be able to speak up for people. Let us speak up, as I am sure he would want to do, for those who could be disadvantaged by the unforeseen consequences of this response to Daily Mail headlines.

“Ending payments like the health and pregnancy grant and slashing child tax credits at a £40,000 joint income threshold is going to put pressure on families already struggling.”

Those are not my words, but those of Bob Reitemeier, the chief executive of the Children’s Society. He added:

“We are also concerned about the amount to be clawed back from the welfare bill over the next five years as the chancellor aims to find savings of £40 billion.”

Gingerbread, the charity for single parents, has said that families having a second child could be worse off by up to £1,200 a year. Chief executive Fiona Weir said:

“Having a baby puts the family finances under pressure. These cuts will really hit families with young children hard.”

The concerns are not mine alone, therefore, and I am genuinely not indulging in party politics. I will say well done to the Government if their proposals are right and they work, but my real fear is that they are acting prematurely and going in too hard, when there are alternatives that are not being considered and which I shall turn to now.

The Chancellor and the Business Secretary regularly cite the examples of Canada and Sweden when it comes to cutting deficits. However, I shall repeat until I am blue in the face that both countries acted against a backdrop of strong economic growth in their export markets. Unless I have missed something, that is not available to countries in Europe, or the eurozone.

Other positive elements in the case of Canada and Sweden were currency devaluation and the active use of monetary policy. However, in the first case we have been there and done that already with sterling and, in the second, hon. Members will know that our base rate is already low.

Without those three little helpers—those three legs of the stool—we do not get the economic support or growth that, under the plans being put forward by the coalition Government, are essential if we are to mitigate the worst excesses of the proposed cuts, beyond the Red Book. What we do get is all the pain of savage cuts, and absolutely none of the gain. That will go on for years.

In fact—I hate to say this, but I am not alone in doing so—we could well go backwards. If, in a year, we are slipping backwards or limping along like some invalid at the bottom of an economic cycle, it will not be because people such as me failed to stand up and make the opposing case. It is important that someone does that, alongside the economists outside the House.

[Jacob Rees-Mogg]

I am grateful to the hon. Gentleman for giving way, but I do not quite understand his logic. Two of the three legs of the stool to which he refers—the loose monetary policy and the devaluation—remain in place, to the benefit of British industry. It is only the third leg that is absent.

[Huw Irranca-Davies]

Indeed. Those two legs have been put in place already, but Sweden and Canada actively used both of them during the period of the cuts in order to make the cuts work. We can no longer do that, and we certainly do not have economic growth.

I put that to the Chancellor in this Chamber on two occasions last week. On the first, he dealt with what I said as a purely party-political matter, and swatted me down. I understand: we do that in this place. On the second occasion, however, he did not have an answer, saying merely that this was a matter of judgment—and that is what I am worried about.

This is a very important issue. All our funding for health, education, social services, local authorities, transport, and the attack on poverty is entirely dependent on one big macro-decision about how we go forward from this recession. If the coalition Government are right, I say good luck to them: they will get my praise in one, two, or five years. However, if they are wrong—and no one on the coalition Benches is willing to accept that there is even a scintilla of a possibility that they could be wrong—they must recognise that some people told them so in advance, and with good reason.

The scenario may have been different in the 1980s, but we saw the effect that the approach adopted by the Government had then. We saw it in a very personal way, as friends who used to have jobs became unemployed. They would knock on our doors asking to clean windows or do other odd jobs just to make ends meet. We knew what was happening, because our children went to the same schools, and that is why I ask the Government please to accept that there is an alternative.

What do others say? Economic commentators such as Will Hutton, Paul Krugman and David Blanchflower have all pointed out that the proposed cuts are about twice as extreme as those undertaken in Canada and threaten the recovery. The cuts seem to be motivated not by a good examination of the alternatives, but by ideology.

I return to my opening comments to the hon. Member for Bournemouth East. The Financial Times suggests that the emergency Budget will affect Wales—my home patch—disproportionately. I know that. As many as 50,000 to 60,000 jobs could be lost in the public sector, but that is not all. The knock-on effect of the loss of between 50,000 and 60,000 public sector jobs, in my constituency or in that of my hon. Friend the Member for Pontypridd (Owen Smith), will be the loss of jobs in the private sector and the loss of retail confidence. High street shops will go and the bottom will be knocked out of our communities. Unemployment, and regional inequality, will grow and grow.

Will Hutton points out:

“No country has ever volunteered such austerity. It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy.”

He noted that it took Sweden three times as long to carry out the same level of cuts as the UK coalition Government want to impose.

The economist David Blanchflower noted that the effects of the Budget will hit young people disproportionately, and that a double-dip recession is almost inevitable. A double-dip recession is the spectre in the room—a Government Member urged us not to use that phrase but it would be remiss of me not to mention it. Of the forthcoming comprehensive spending review, David Blanchflower says:

“If the young are first, I fully expect the disabled, the old and the weak to be the next target.”

There is an alternative way forward and I genuinely ask the Government to consider it. Will they also consider a new version of the Tobin tax, or Robin Hood tax—much derided for many years? It is good to see a bank levy, but it could have been more ambitious. An open letter to the Chancellor was signed by many Members, including our Green party representative, the hon. Member for Brighton, Pavilion (Caroline Lucas), Welsh MPs, cross-party civic organisations, Save the Children Wales, Christian Aid Wales, the secretary of the Public and Commercial Services Union Wales, the National Association of Probation Officers Wales and GMB Wales. It states:

“We are pleased that you support a bank tax, but a truly ambitious bank tax would mean those with the broadest shoulders bear the brunt of the cost of the economic recovery, whereas a rise in Value Added Tax or premature cuts to public services would hit the poorest hardest.”

That letter was genuinely cross-party. Some of the greatest advocates of that approach sat in the Liberal Democrat camp on the Opposition Benches, and we tried very hard to get a signature from a Welsh Liberal Democrat. It seems that the lines about premature cuts are now out of date.

I say to the Government, please be right. We often pull at the emotional heartstrings about the 1980s, but if the Budget damages my communities as I think it will, when there is an alternative, I shall certainly never forget or forgive, and nor will my communities, because we have seen it all before. I hope we are not seeing old-style 1980s Tory cuts. I hope that the measures that the coalition Government say will mitigate the worst excesses for the lowest deciles and quintiles are well judged, but I fear they are not. Why are the coalition Government not even considering an alternative way forward that minimises the risks to communities such as mine?

--- Later in debate ---

[Caroline Lucas]

I thank the hon. Gentleman for his contribution, but if the then Government had not done that our situation would have been an awful lot worse. Many commentators are saying that this is a time to be investing, not taking money out of the economy. Our current situation would have been much worse if we had not had that stimulus at that time.

Despite what the Government say, we are not all in this together. Some people had more responsibility for the crisis than others and some benefited more from the boom that preceded it. It seems to me that those who enjoyed the largest benefits should pay the highest price. We need progressive tax reform. Increasing the tax take from those most able to pay it and helping lower earners by reintroducing the 10% tax band now would be a good start, both in raising revenue and in addressing inequality.

If we are looking for ways to find more revenue, let us bear in mind the huge extent of tax avoidance, tax evasion and unpaid tax in the UK. The figures are truly staggering. Her Majesty’s Revenue and Customs admits that tax evasion and avoidance together come to almost £40 billion a year, and in November 2009 it admitted that £28 billion of unpaid tax was owing. Shocking as those figures are, some experts out there suggest that the total target for necessary action to collect tax due and owing could be more than £100 billion a year. Why do we not see more efforts to go after that kind of money?

There are a range of options for changing the UK tax rules progressively so that more than £40 billion of additional taxes could be raised each year by the end of the life of this Parliament. With tax-collecting efficiency savings, that would deliver more than £60 billion of tax revenues for the UK, thus preventing any need for cuts to public services.

I say that not because I think we should introduce all those tax measures—certainly not straight away—but to prove that we have a choice. Spending cuts are not the only way to address the deficit. Fairer taxation has never even been put to the public as an option. That is a betrayal.

[Jacob Rees-Mogg]

Is the hon. Lady aware that if the tax rises she proposes were introduced, we would have the highest ratio of tax to GDP that this country has had in 40 years—7% higher than the record achieved under Margaret Thatcher’s Government?

[Caroline Lucas]

We also have a country that is at its most unequal at any time since the second world war. If someone asked me whether I would like either progressive tax reform or a much more equal society, I know which I would choose, because so much evidence suggests that unequal societies are not just incredibly damaging for those at the bottom of the heap, which is fairly clear; they are corrosive for everybody in society. Books such as “The Spirit Level” have demonstrated just how corrosive inequality is for everybody in terms of health outcomes and general well-being. I am happy to say here and now that I would much rather see an equal society. Of course, that is something the coalition Government told us the Budget was all about. It was supposed to be a fair Budget.

What choices were made? Let us be clear again that they were political choices; they were not inevitabilities. It was a political choice to make effective cuts to child benefit, the child tax credit and child tax funds that, together, cost £2.5 billion. Those cuts could have been avoided if, for example, the Chancellor had chosen not to cut corporation tax. It was also a political choice to increase VAT—a tax that hits the poorest hardest and that both Government parties said they were not in favour of increasing.

Raising the income tax threshold as some kind of compensation does nothing for the poorest households that do not pay income tax anyway, since in any given year about one in four families contains no income taxpayer at all. Uprating future benefits and tax credits only in line with consumer price inflation, rather than retail price inflation, will have a dramatic effect in increasing inequality in society. If we add to that the severe cuts in housing benefit, which will have a devastating impact on areas where significant numbers of people depend on it, such as my constituency of Brighton Pavilion, we can see that the menu we are being served up is very damaging indeed.

Let us remember that the vast majority of people who claim housing benefit are pensioners, people with disabilities or who care for relatives, or hard-working people on low incomes. As the director of Shelter has said,

“If this support is ripped out suddenly from under their feet it will push many households over the edge, triggering a spiral of debt, eviction and homelessness.”

If we add to that—if that were not enough—the impact of swingeing public spending cuts, we see a hugely bleak picture. Unemployment will grow, and anyone who leaves school or college in the next five years faces a grim future.

Of course, meanwhile, the rich have been largely let off. That is why we have seen the coverage we have seen in the Financial Times and everywhere else, with people saying that they are breathing a sigh of relief because the Budget did not hit them as hard as they thought it might. The rich will hardly notice the VAT increase. The bank levy is puny—less than half the £5 billion to £8 billion originally predicted—and is a fraction of City bonuses. That is not unavoidable; it is a political choice. The Government could have introduced a Robin Hood tax to raise billions—they did not. That was another political choice.

Unprotected departmental budgets will be savaged. Local government will need to slash services if it is to freeze council tax. Public servants, who did nothing to cause the slump, are being asked to bear an unfair share of the burden. Again, one thing we can say for sure is that we are definitely not all in this together. People on middle and low incomes have done much worse than expected, and the rich have been let off much of what they feared, but we will all suffer from an economy that now has a very real risk of going into a double-dip recession.

Many Opposition Members have talked about the importance of listening to commentators, such as Noble prize winner Joseph Stiglitz or David Blanchflower, about the real dangers of that double dip. David Blanchflower is one of the very few people who saw the recession coming. We should listen to his warnings now. The economy is still fragile. Today’s measures will certainly slow recovery and could well stop it in its tracks. Even Martin Wolf says in today’s Financial Times that we should be printing more money, rather than taking it out of the economy.

I should like to suggest that the real way out of the crisis, as well as fairer taxation, is through a major Government investment in the green infrastructure that this country so urgently needs if we are to emerge stronger from the recession than we were when we went into it. My party has called for the introduction of a green new deal—a massive and sustained investment in energy efficiency and renewable energy generation, which would create hundreds of thousands of new jobs, as well as cutting carbon emissions and making our economy more sustainable.

Let me give an example. Greens on a council in the north of the country brought an idea to the table that was accepted by the council and is being rolled out. Essentially, they leveraged some money from the energy companies and matched it with some council funding, and they are now rolling out free insulation for 40,000 homes in that area. That is not only cutting emissions, but saving average families about £150 a year on their fuel bills and creating 200 jobs. That sort of programme needs to be rolled out country-wide.

What about green measures in the Budget—or, better, where are the green measures in the Budget? Let us remember what the coalition manifesto promised. It said that it was promising

“a full programme of measures to fulfil our joint ambitions for a low carbon and eco-friendly economy”.

Those ambitions cannot have been very high.

The coalition’s first Budget offered little more than a passing reference to the green investment bank, just a few lines about future reforms to the price of carbon dioxide and a renewed promise on energy efficiency, so where exactly is this famous full programme of measures? I searched in vain, but instead I saw old style, big picture macro-economics, with a 4% cut in corporation tax over the Parliament and a regional growth fund for new businesses from next April that will provide

“a stable economic foundation for private sector growth”.

I am not against that, but what kind of growth are we talking about? Where is any commitment to sustainability in the vision for growth? What about the commitment to the green investment bank, which is urgently needed to drive £2 billion into clean energy by 2020? Apparently, we are going to have to wait, as there was no particular urgency on the green agenda in the Budget.

We were told instead that the Government will put forward

“detailed proposals on the creation of a Green Investment Bank”

after the spending review, but we have heard that before. We are told that the Government are considering a wide range of options, but there is no confirmation of legislation and no mention of capitalisation. With nothing in the Budget on the green deal for households, we must wait for this autumn’s energy security and green economy Bill. The low-carbon industrial strategy already appears to have lost urgency and direction.

The Chancellor talked a great deal yesterday about the crisis of national debt, but he barely mentioned the much bigger and more dangerous crisis of climate change. When the coalition Government were formed, Ministers said they would be the greenest Government ever. As I pointed out at the time, that, sadly, would not be very difficult, given Labour’s lamentable record, but it does not look as though serious steps are being taken to make this a green Government either.

The Budget is economically dangerous, socially divisive and completely lacking in any kind of vision for sustainability. Tragically, an opportunity has been missed to introduce something genuinely progressive, such as a Robin Hood tax on financial transactions, measures to increase employment and cut emissions through a green new deal, and measures to introduce fairer taxation—in other words, measures to take us closer to the fairer, greener Britain that the coalition says it wants to achieve, but from which, after the Budget, we are further than ever before.