Finance Bill
Justine Greening Excerpts(13 years, 9 months ago)
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The Economic Secretary to the Treasury (Justine Greening)
Will the right hon. Gentleman give way?
Justine Greening
Is the right hon. Gentleman saying that he thinks the savings ratio is too high and that we should encourage people to go out and spend, spend, spend even if they cannot afford it?
Mr Byrne
No. I am saying that the country’s investors now have so little confidence in the economic plan that they would rather save their money than dare to invest it in productive capacity and growth for the future.
Let us look at some of the measures that show the decline in confidence. The Bank of England says that mortgage approvals fell in June; last month, the consumer confidence index fell for the first time in a long time; and yesterday, Rightmove told us that house prices have been cut for the first time this year. The Budget and the Bill are putting Britain’s recovery in the slow lane. The greatest irony of all is that we must all pay more as a consequence.
Justine Greening
No, I will not.
We have just heard from the shadow Minister that the Opposition are still in denial, and I shall come to that later. Before we conclude what has been a lengthy debate over the past few weeks, I wish to echo the earlier comments of my hon. Friend the Exchequer Secretary. Hon. Members throughout the House have played an essential role in scrutinising the Bill, and I thank them all for doing so.
Today we heard from the shadow Chief Secretary—the man who admitted that there was no money left—and from my hon. Friend the Member for West Suffolk (Matthew Hancock), who successfully demolished the Opposition’s case for failing to take any action to sort out the deficit. We heard from a number of Opposition Members, including the hon. Members for Wakefield (Mary Creagh), for Streatham (Mr Umunna) and for Chesterfield (Toby Perkins). I listened to what they had to say with great interest, and in many cases they violently agreed that we are in a serious situation that needs to be sorted out. What we failed to get from any of them, however, was any kind of alternative. That thread has run through not just today’s debate but the debates over the past few weeks.
We heard an important contribution from the hon. Member for St Ives (Andrew George), who throughout our debates has talked about his concerns about some aspects of the Bill. However, he has recognised that we have to take serious steps to sort out the fiscal deficit. We also heard from my hon. Friends the Members for Daventry (Chris Heaton-Harris), for Dover (Charlie Elphicke) and for Stourbridge (Margot James), who all want a Government who face up to the challenge, as do their constituents.
The Bill provides for many of the key measures in the emergency Budget, which was needed to address the fiscal crisis that we face in our country and get Britain growing. Although it was tough, it needed to be, and was, fair. When we came into government, we had to set up the Office for Budget Responsibility to get, finally, an independent review of the books. That review showed that the books were perhaps even worse than the former Chief Secretary had said.
Justine Greening
No, I will not.
The OBR said that the deficit was £12 billion larger than had previously been suggested, so our priority was to tackle that deficit. Although reductions in public sector spending will be necessary to ensure that it is at a level affordable to the public, taxes clearly have to play their part as well. As we have heard, even from the hon. Member for Wallasey (Ms Eagle), growth in employment must be led by the private sector. Reducing incentives to employers, as the previous Government would have done by introducing the jobs tax and raising small companies’ corporation tax rates, would have reduced incentives and led to our economy languishing for longer and longer, and debt building up.
Chris Williamson (Derby North) (Lab)
Is the Minister aware, though, that the Financial Times published research last month showing that 1.2 million jobs in the private sector rely on the public spending that she is going to cut?
Justine Greening
That is typical of the contributions that we have had from Opposition Members all the way through our debates. The hon. Gentleman’s party went into the election having passed its Fiscal Responsibility Act 2010, which set out 20% cuts. That means one of three things. Either Labour Members had no intention of ever reducing or tackling the deficit, in which case the Act was gross duplicity; or they went into the election standing on a platform of cuts with no idea whatever of how to deliver them, in which case it was gross incompetence; or they knew what they wanted to do but still, in spite of all the hours of debate, fail to admit to any of the measures that they were planning to take, in which case it is gross concealment. We need take no lectures from the hon. Gentleman.
Justine Greening
No, I will not. There was a time when the Labour party had something relevant to say on the economy; that time has now passed.
What we need to do is to ensure that companies in this country and across the world know that Britain is open for business. That is why the centrepiece of the Budget was providing a springboard for a private sector-led recovery to take place by reducing the rate of corporation tax year on year over the next four years; reducing the small profits rate of corporation tax, benefiting 850,000 companies; and of course taking difficult decisions on capital gains tax changes that will mean increases for higher rate tax payers while protecting entrepreneurship. The Budget was welcomed by business across the board, and it is important to bear that in mind when Opposition Members say that they do not believe that it will ultimately boost jobs.
Although we wanted to help business succeed, we also recognised the importance of protecting those most in need, and the Budget did just that. From April 2011, we are increasing the personal allowance, removing almost 1 million people from income tax. On pensions, we are taking the power to repeal the pensions tax regime introduced in the Finance Act 2010, which will allow us to bring in a fairer arrangement that will not allow the very rich to benefit from basic rate tax relief. We are re-establishing the earnings link for the state pension with a triple guarantee, making changes to the benefit system that will protect the most vulnerable people in our society, increasing child tax credits and introducing a set of measures that, despite a tough Budget, will leave child poverty unchanged.
We know that we need to take that action, because the Labour party has absolutely no alternative. We have debated the Budget long enough now for Labour Members to have brought forward an alternative if they had one, but they clearly do not. We have been honest and open about the problems that our country faces.
Justine Greening
That is what the voters expect, and what they—[Hon. Members: “Give way!”] Oh, I will give way.
Clive Efford
I am very grateful to the hon. Lady, but will she accept this one point? Throughout the debate her party has argued that the state is too big. Everyone accepts that the Budget will cut the size of the state so that in six years, it will be smaller as a proportion of GDP than it was in 1997. Does that not suggest that it is an ideological move, and on that basis does she not accept that if the Tories had been elected in 1997, they would have come in cutting?
Justine Greening
What is too big is the deficit. That is what we need to sort out. As I have said, the hon. Gentleman’s party itself recognised the need to cut public expenditure, which has to be at an affordable level.
While we have sought to engage the public in the debate about how we can recover from the economic crisis, rebalance our economy and rehabilitate ourselves from debt-driven policies, all that we have heard from the Opposition is what they do not like, and nothing about what they would do instead. They have said no to everything and yes to nothing, and they have kept quiet when asked how they would solve the problems that they have caused. It was one party that got us into this mess, and now two parties will have to get us out of it.
We have heard a lot of analogies today, but to my mind the Opposition are in denial: they are like a debt junkie. Like most junkies and addicts, they always want to solve the problem tomorrow. They want a reduction in the deficit tomorrow, growth in the private sector tomorrow, and fairness for those most in need tomorrow. We were never going to see any action from the Labour party, and over the course of this Budget debate we have heard shrill voices of despair from the Opposition Benches.
We have taken decisions that are right for this country—tackling our debt, kick-starting the private sector and taking action to take those on the lowest incomes out of income tax. Those choices are the right ones to start our country back on a credible path to sustainable recovery. We are encouraging enterprise and protecting those most in need, yet tackling the colossal debt left to us and to this country. This coalition Government are making decisions where Opposition Members did not have the courage, and I commend the Bill to the House.
Question put, That the Bill be now read the Third time.
Finance Bill
Justine Greening Excerpts(13 years, 9 months ago)
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Ms Eagle
I certainly understand that anger, and I suspect that there will be even more anger if the Government do not address the unfair way in which the distribution of the pension tax relief has developed, especially since the simplification from A-day in 2006. We tried to address the problem by targeting the people at the very top who had benefited the most from the relief in particular.
We received representations from stakeholders who called for a simpler system, and it would be wrong of me to try to claim that the system for which we legislated was simple—it was clearly complex. However, when dealing with people on very high earnings who use complex financial arrangements, we often find that that complexity must be matched to ensure that a fair amount of tax is taken from them. In tax and benefit law, as the Economic Secretary will know—she probably struggles with this every day—there is always a trade-off between simplification and fairness, as well as yield. We took the view that despite the complexities of the system that we were introducing, it was right to target very high earners in particular. I state the distributional analysis again: the top 300,000 people receive 25% of £18.9 billion. No right-thinking person in this country with any kind of understanding of what the term “fairness” means would want us to tolerate that kind of distribution.
Simplification is always a popular cry, but there are trade-offs, and it causes different problems if we create a simpler system. We did consider other options, but the trade-offs are inescapable. We want to explore in debate today how the Government are working their way through the trade-offs, so that we can try to assess whether the solution that the Government have hinted at, but have not put before us, is fair, or whether its outcome is less fair than the outcome of the system that we decided on.
The Economic Secretary to the Treasury (Justine Greening)
I can see that the hon. Lady and other Opposition Members are following a particular train of inquiry, and that is perfectly right—it is the purpose of this debate. I just draw her attention to the fact that the clause gives the Government the power to repeal the previous measures if we can find a better alternative. If we cannot, I assure her that we will leave what is in place. However, does she agree with the Institute for Fiscal Studies, which described the measures that the previous Government proposed as unfair?
Ms Eagle
It is up to the entire electorate to decide what is fair or unfair. I have set out some of the reasons why we approached what is a difficult problem in the way that we did, but I certainly welcome the Minister’s comment that if the Government cannot find a different way of doing things, they will leave the current structure in place. I was wondering about the reference in the clause to December this year. I suspected that that might be what we would call a backstop position. It is important that the hon. Lady has put her point on the record. Taking what she says at face value, I assume that the Government will do some work in the next period. I do not know whether a measure will be in the Finance Bill, or how quickly that work will be done, but certainly there is not very much time for a completely new system to be brought in.
Justine Greening
The hon. Lady is very kind. Given that she raises the issue, perhaps it would be helpful for the rest of the debate if I set matters out. On the timelines, she is right; we clearly need to make progress quickly. The aim is to publish draft clauses in the autumn, and to legislate in the Finance Bill 2011.
Ms Eagle
I certainly appreciate the information that the Minister has put before us, and it helps us to get on with the debate. I suppose it means that she and her officials will have time for at least a little bit of a holiday this August. Under our plans, the yield begins to come in during the next financial year. I was under the impression that she would have had to ensure that she legislated for an entirely new system in the September 2010 Finance Bill. She now tells us that potential measures for an alternative system will be forced into next year’s Finance Bill, which means that an extra £0.2 billion of revenue that was scored for the next financial year will have to be raised. I assume that she will take account of that.
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.”
Thomas Docherty
I shall be relatively brief. It is perhaps worth noting that since my hon. Friend the Member for North Durham (Mr Jones) first commented on the lack of interest from those on the Government Benches, there has been a flurry of—I suspect—BlackBerry messages going out, so that we are now being treated to no fewer than five Conservative Back Benchers. They have joined us for the afternoon, yet not a single Liberal Democrat has arrived in the Chamber.
It would be wrong of me to suggest that the Liberal Democrats are simply uninterested in the Budget, so could it be that the Chancellor, having been thwarted in his plans for a millionaire’s inheritance tax break, came up with a new wheeze after the coalition deal? How could he help his friends in the City? Unsurprisingly, the Chancellor’s new wheeze is to reverse the previous Government’s policy of trying to find a more equitable approach to pensions. That, I suggest, is the reason why our Liberal Democrat colleagues have not been advised of the importance of this debate. For if they saw the skilful manoeuvre that the Economic Secretary is trying to perform on the Committee today, they would surely rush to the Chamber to show their outrage at this terrible scheme.
It is a slightly unusual situation when a Minister as artful and articulate as the Economic Secretary tells us this afternoon that the current system is terrible—that it does not work; that it is unfair and unclear—yet has not been able to articulate what would replace it. It strikes me, as a perhaps naive and innocent new Member, that the starting point for any Government—particularly a Government who are so terribly keen to reduce regulation and bureaucracy—should be as follows: rather than introducing legislation that has no purpose except to give them some wriggle room, the Government would have been better off spending their time coming up with an alternative proposal for the Committee to examine, instead of giving the Minister the opportunity to spend her summer and that of her civil servants coming up with a new scheme.
To conclude, although I look forward to the Minister’s reply, I suspect that we will hear no detail whatever about what the Government plan to replace the current system with, and that in six months’ time she will not have been able to find a suitable replacement.
Justine Greening
May I start by saying what a pleasure it is to serve under your chairmanship, Mr Amess?
We have had a wide-ranging debate today and I will do my best to answer a number of the issues that Opposition Members have raised. However, it would perhaps be best for me first to set out the background to this debate, as the shadow Minister did. This issue was first looked at by the previous Government, and we have returned to it as a new Government. The coalition Government inherited from their predecessor the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four that we spend is borrowed. The gap stands at £149 billion for this financial year alone.
The previous Government had planned to raise extra revenue through the restriction of pensions relief for higher-rate earners. As we have heard, that approach was due to raise £4 billion to £5 billion a year by 2014-15. Given the appalling state of the public finances that we have been left as a new Government, it is something that we cannot ignore.
On Second Reading, my right hon. Friend the Chief Secretary set out our commitment to fairness. This is a progressive Budget that ensures that every part of society makes a contribution to deficit reduction, while protecting the most vulnerable, especially children in poverty and pensioners. The Budget has a number of measures to support pensioners, not least the triple lock guaranteeing an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the higher.
Justine Greening
Let me make some progress.
That will benefit 11 million pensioners across the country. Through clause 6, which we will debate next, the Budget will enable individuals to make more flexible use of their pension savings.
Returning to clause 5, the Government have considered pension tax relief issues and believe that reform is a necessary part of their commitment to tackling the fiscal deficit. It is worth citing the views of Robert Chote, who heads up the Institute for Fiscal Studies, following the Budget. He spoke about this measure on 23 June:
“Perhaps the most welcome change was the decision to rethink the last Government’s complex, unfair and inefficient plans to limit pension contributions relief for high earners.”
That was what he thought about it.
Justine Greening
Many people on the minimum wage will not view it as progressive for someone who can afford to pay upwards of £100,000 a year into a pension fund to be given a 20% marginal rate tax break. In fact, that was not the only problem. Having listened to the concerns of the pensions industry and employers, this Government have real reservations about the approach towards pensions tax relief that was adopted in the Finance Act 2010. We believe it could have unwelcome consequences for pension saving, bring significant complexity into the tax system and damage UK business and competitiveness. The director general of the CBI said of the previous Government’s measure, brought forward in the Finance Act 2010:
“This will have serious consequences—it will make it much harder for UK business to attract and retain global talent… In every way, it’s a bad move.”
In addition, a number of features of the approach adopted in the Finance Act 2010 were unfair. For example, it included a very complicated income test, which made it difficult for individuals and advisers to understand. It also made it difficult for individuals to plan, as they would not know their final income until the end of the tax year so they would not know until then whether or by how much they would be affected. The income test also created many perverse incentives, avoidance opportunities and anomalies. For example, different charges could arise, depending on whether an individual or their employer made the pension contributions.
Under the approach in the Finance Act 2010, individuals on the highest incomes, who are able to put in very large pension contributions—upwards of £100,000 to £200,000 in one year—would have continued to get pensions tax relief, as they would still have been able to get relief at the basic rate rather than the higher rate. That is worth up to £51,000 a year. Given our concern for fairness, we believe—
Justine Greening
We are proposing a different approach, which would address that very measure. The decision for the hon. Gentleman to take tonight is on whether people who are able to pay £100,000 to £200,000 a year into their pension fund should be able to get tax relief at the basic rate. That is the question for him to answer.
Ms Angela Eagle
There are hints in the Red Book about the annual allowance taking the strain, so will the Minister tell us whether that is the only approach that is going to be looked at, or is she considering a range of different approaches? She is comparing a system that was legislated for and consulted on with a replacement about which the House has no real information. As I say, there is a hint in the Red Book, but nothing else. Will she help us focus on the comparison by doing us the courtesy of telling us what her Government are going to develop as an alternative?
Justine Greening
I was just about to come to that. One thing that we know right now about the existing plans is that if they came in from April 2011, they would curtail, but still give, basic rate tax relief to people who can afford to pay hundreds of thousands of pounds into a pension every year. Our alternative approach looks principally at significantly reducing the annual allowance to curtail that effect. We think that the annual tax relief available will potentially be restricted to less than half that available under the previous Government’s plan, significantly curtailing the ability of the super-rich to benefit from pensions tax relief. That alternative approach is supported by the pensions industry, including the National Association of Pension Funds, as well as employers and their representatives, including the CBI. The Government are keen to continue to engage with the pensions industry, employers and other interested parties to specify the level of the annual allowance, and other relevant design features.
Let me leave no uncertainty about our fiscal objectives. The Government are clear that a reduced annual allowance approach would have to raise no less revenue than the existing plans to restrict pensions tax relief in order to enable us to meet our commitment to deficit reduction. That is why we are not repealing the existing regime at this point, while we are finding a better way of achieving our objectives.
The hon. Member for Wallasey (Ms Eagle) asked for more detail. Our provisional analysis suggests that the appropriate level for the annual allowance could be in the region of £30,000 to £45,000 in order to deliver the necessary yield to the Treasury. However, the level required would be influenced by a number of policy design features in the revised regime. Once those have been decided, we can repeal the measures in the previous Government’s Finance Act 2010. Clause 5 therefore gives the Treasury a power to make an order repealing section 23 and schedule 2 in that Act.
Those measures, which are known as the high income excess relief charge, restrict pensions tax relief to the basic rate for high-income individuals, with effect from 6 April 2011. Let us be clear, however, that they still give basic rate tax relief to high-income individuals. The Government want to consult on a new approach. We want to discuss how best to design an alternative approach to make sure that it can operate fairly and effectively. The power to repeal is time-limited, because we recognise the need to resolve the design of the restriction of pensions tax relief as quickly as possible. We have already begun discussions with groups, which will continue through the summer.
Amendment 60 proposes that we should publish a report outlining the new arrangements and details of the yield implications and distributional impacts. I have some sympathy with the thrust of the amendment, but it will ultimately be unnecessary, because there will clearly be a chance for people to look over the draft legislation, and we will not repeal the high income excess relief charge until details of the alternative regime have been finalised and set out in public.
Ms Angela Eagle
I thank the Minister for giving way on this important point. Will she undertake to provide a distributional analysis so that we can compare directly the effects of the system that she wants to repeal, with the system that the Government finally settle on if she can find an alternative? That is the essence of the amendment, so her answer to this question is quite important.
Justine Greening
A whole range of analyses and impact statements will come out with the legislation. I suspect that, as my hon. Friend the Member for Chelsea and Fulham (Greg Hands) behind me is saying, any work that is done would give an answer that Opposition Members would not like, because it would show that we are no longer going to give basic rate tax relief to people who can afford to pay hundreds of thousands of pounds into a pension pot every year.
Let me address some of the issues that have been raised. I have set out the time frame within which we want to progress towards a better alternative to the current system. We all agree that, for pensions tax relief to remain affordable, we have to limit high levels of tax-privileged pensions saving, but we think that there is a better way of doing it than the one set out by the previous Government. We believe it is important to reduce the annual allowance to prevent people from saving £255,000 a year tax free.
The hon. Member for Wallasey mentioned instances of people suddenly being able to pay a large amount into a pension fund on a one-off basis. She was right to raise that matter, and we shall be looking at options for protecting basic rate taxpayers and supporting any hard cases caused by such one-off spikes in pension accruals. She also asked about the lifetime allowance being changed. We have not ruled that out, but it is obviously a key mechanism that sits alongside the annual allowance. We shall therefore have to look at it in the context of where we end up going with the annual allowance limit. I should say that all this is subject to being able to work with key stakeholders to get something that we believe we can rely on. That is why the provisions will give us the power to repeal that measure, if we can find a better way.
I particularly want to respond to the argument from Labour Members that our proposals would somehow give a tax break to the most well-off people in the country. Let us have a look at some of the figures involved. Of course, the minute I say that, I lose the relevant bit of paper. Ah, here it is. Under the terms of the Finance Act 2010, someone who is contributing £283,000 to their pension fund on an annual basis would have had a tax charge, net of pension relief, of £85,000. Someone making the same contribution to their pension pot under a potential annual allowance level of £35,000 would have a tax charge, net of relief, of £124,000. The reason for that is that they would get 20% tax relief on the income that they would otherwise have paid a much higher rate of tax on. That is why they would pay just under £40,000 a year more under our proposed scheme than they would have done under the previous Government’s arrangements.
I wonder whether those Labour MPs who are so concerned about the impact of tax policy on the better-off people in this country will go through the Lobby today and vote for a measure that means that people who can afford to pay £283,000 a year into their pension pot will pay £40,000 less tax than they would previously have done. I do not know what Labour Members think “good” looks like in relation to taxing better-off people, but I guess I will find out when we have a Division on this amendment shortly.
Chris Leslie
The hon. Lady is talking to us as though we were schoolchildren, but she will not publish her proposals. Will she now agree to place in the Library a copy of the table that she has in front of her straight away, or this evening, so that we can all share in this secret plan?
Justine Greening
I would have thought that the hon. Gentleman was so intelligent that he could do the maths himself. The calculation is pretty straightforward. It is a bit like doing a tax calculation where someone has an allowance and then a rate, and they apply it to the excess of the allowance that they are paying in extra.
Matthew Hancock (West Suffolk) (Con)
Does my hon. Friend remember a distributional table ever being placed in a Budget under the Labour Government?
Justine Greening
I have no recollection of that, but I will not take up more of the time of the Committee. The last figures that I set out probably spoke louder—
Chris Leslie
On a point of order, Mr Amess. Is it in order for the Minister to withhold information to which she has clearly referred in the debate from the rest of the Members engaging in the discussion?
Justine Greening
It seems that I’m damned if I give information and damned if I don’t. I was asked to provide some facts, and I made sure that I gave some facts and figures. Now that I have provided some to the Committee, apparently that is a bad thing to do too. I think the problem is that the figures I have just provided are not ones that Opposition Members want to confront. They are about to go through the Lobby and vote on people who can afford to put a couple of hundred thousand pounds into their pension pot paying more tax net of pension relief than less.
Thomas Docherty
I am grateful to the Minister for helping us to understand how much the Chancellor can afford to put into his pension fund. How can we confront figures that we do not get to see?
Justine Greening
I was asked for some figures and what the impact would be on the very richest. We can probably find in Hansard tomorrow that I have just provided the Committee with that information. That is probably the way in which debates are meant to work. Ministers have questions put to them and if they can answer them in some detail, they do. That is what I have done. I have set out in some detail why we are pursuing the clause. I hope that everyone realises that it is sensible and a pragmatic way to address the industry’s concerns. The industry faced a £1 billion bill for implementing excessively complicated and unfair tax changes on pensions tax relief. We hope that we can reach a conclusion with the industry and all stakeholders, but the key issue is to address the fiscal deficit, so any solution will have to bring in no less money than the mechanism intended by the previous Government.
Ms Angela Eagle
We have had a long discussion, so I will be brief. I appreciate the information, such as it was, that the Minister was able to put before us about the shape of the alternative scheme. It is a bit like shadow boxing when one tries to compare a scheme that has already been legislated for with one that has been only hinted at in the Red Book. That has been the problem with this debate.
I was candid about the issues and trade-offs that we had to go through to come up with the structure for which we legislated in the Finance Act 2010. I hope that the Minister and her colleagues will be as candid as they try to develop this other method. She said that she was sympathetic, but she is still resisting the amendment to put a report before the House that will contain distributional analyses and much more information about this alternative system. That is a great pity. We shall divide the Committee on that amendment as the Minister has not given us an undertaking to provide that information. I also want a separate vote on clause 5.
Question put, That the amendment be made.
Justine Greening
I am grateful to the hon. Member for Dundee East (Stewart Hosie) for his questions, and it is probably wise if I take this opportunity to set out to the Committee the background of clause 6 and address the issues that he raised. I am sure that he will be interested in the consultation document that has been launched today on a number of them.
The Chancellor announced in the Budget that the Government would end the effective requirement to purchase an annuity by age 75 with effect from April 2011. The reason why we want to do that is that it will provide greater flexibility and choice for the individuals affected. In considering the hon. Gentleman’s amendments, it is important for the Committee to understand why we are making that change and how we are going about it.
A consultation on the detail of the changes was launched earlier today by my hon. Friend the Financial Secretary, and our intention is to introduce any changes from April 2011. As set out in the consultation document, the Government will be guided by the following principles in implementing the changes: first, that the purpose of tax-relieved pension savings is to provide an income in retirement; secondly, that any changes to the pension tax rules should not incur Exchequer cost or create any opportunities for tax avoidance; thirdly, that individuals should have the flexibility to decide when and how best to turn their pension savings into a retirement income, provided that they have sufficient income to avoid exhausting their savings prematurely and falling back on the state; fourthly, that pension benefits taken during an individual’s lifetime should be taxed at income tax rates, with the tax-free pension commencement lump sum continuing to be available; and fifthly, that on death, as the hon. Gentleman mentioned, the pension savings that have been accumulated with tax relief should be taxed at an appropriate rate to recover past relief provided, unless they are used to provide a pension for a dependant. Those principles will ensure that the new rules offer maximum flexibility to pension savers, while avoiding undue complexity or incurring a cost to the Exchequer.
The proposals set out in the consultation document will create additional flexibility for anyone saving into a defined contribution pension. That new flexibility means that individuals will be able to decide for themselves whether and when to purchase an annuity. It will also allow them to leave their pension fund invested in an income draw-down arrangement beyond the age of 75, and to take benefits from their pension fund later than that age if they wish. In addition, individuals who can demonstrate that they have secured a minimum income will be free to draw down unlimited lump sums. The changes will also allow the pensions and annuities industry to consider more innovative products, giving consumers greater choice.
While the new rules are being finalised, it is important that individuals who are about to turn 75, and who have not yet made a decision about what to do with their pension savings, are not disadvantaged in the meantime. The changes set out in schedule 3 are the minimum necessary to enable those reaching 75 on or after Budget day to defer the decision on what to do with their pension savings.
The Bill achieves that by providing for the pension tax rules that previously applied to draw-down arrangements only up to age 75 to continue to apply up to an individual’s 77th birthday. That means that the higher inheritance tax charges that apply specifically to pension scheme members aged 75 or over will not apply to individuals who are about to turn 75, and who have not yet made a decision on what to do with their pension. They will not now have to make a decision until they reach 77, and in the meantime we will have worked through the consultation process. Clause 6 and schedule 3 will therefore ensure that they need make no decision until after new rules are finalised next year. To do otherwise would be unfair and confusing, and changing the rules retrospectively would add unnecessary complexity.
Mr Weir
I understand the Economic Secretary’s point and I am closely following her argument. Does she accept that many people did not get annuities in the past two or three years because the economic position meant that it was simply not a good time to buy them? Those people are effectively being penalised. Would it not be fair, as I suggested in an earlier intervention, to say that everyone had two years from now, while the consultation goes ahead and changes are being made, to consider their position? Perhaps some people will wish to continue as they are, but at least they would have the option, which is rightly being given to people who are approaching 75.
Justine Greening
I thank the hon. Gentleman for that intervention. I will set out our overall approach to the issue that he raised. In every individual case, there are specifics. I was not aware of the case of the individual whom he mentioned, and I would be happy to give him a more specific answer if he gives me details. However, in principle, he raises a difficult issue. It is doubtless hard for people who reached their 75th birthday before we got to Budget day when we announced the proposed changes. We had pressed the previous Government to take action earlier, but it was left to us, on coming into government, to start to take the steps that we all agree are important. We do not agree with making retrospective legislation, except in the most egregious cases. As he said, the provision affects only a few hundred people.
The inheritance tax charge of 80% would apply to estates over the inheritance tax threshold of £360,000 a year. On the face of it, I cannot give much comfort to the constituent of the hon. Member for Angus (Mr Weir). We are trying to improve the position of those who reached 75 on or after Budget day, but I have set out the basic principles, and the details of the constituent’s case may or may not fit them. If the hon. Gentleman provides the exact details, I will give him a more exact answer. I hope that I have provided some background and that we can find a way forward to clarify and resolve the specific issue.
Stewart Hosie
I thank the Economic Secretary for her response. Clearly, the way forward for people reaching 75 is sensible. The two-year deferral until the consultation is complete is right. It recognises the problem and ensures that no one else falls through the cracks between now and the end of the consultation. I am slightly disappointed that no hope was offered that the consultation could allow a slightly retrospective element to those very few people who have become 75 in the past few years, did not take an annuity and are managing their own funds. I will not press the amendment, but I will have another think about it before we reach Report next week, when I may revert to it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr Redwood
I would love to deal with that point, but I shall take your advice, Mr Evans. The real sin was the tax and regulatory raid on pensions under the last Government, which led to the wholesale closures of final salary schemes, and as a result of which most people starting out in work today have no access to a final salary work-based scheme in the way that their parents’ generation did. That is a great tragedy. However, this provision is a small move in the right direction, so I hope that the House will warmly welcome it. Well done to the Minister.
Justine Greening
I thank my right hon. Friend for his kind words. This provision is a step forward. As he said, it might be a small one, but it is an important one that will open up a flexibility that many whom we want to encourage to start saving for a pension will value, which is why it is important that we take the time to make an early start on this matter.
I want to respond to a couple of the shadow Minister’s points, including the one about the consultation document not being published in good time. This clause allows us to engage in a consultation. It was not necessary to launch the consultation today, but as it was it was launched at 12.30 pm, and by the time we got to the clause it was 5 o’clock—several hours after the document became available—which has meant that we have had a more informed debate today.
Justine Greening
We are getting into the same sort of argument that we had in the previous debate, where if we had put the consultation document up and had not had a sentence on an earlier webpage saying that it was there, we would have been accused of hiding it away. I am afraid that we have to do one before the other, and clearly in this case we decided to put out the statement that the consultation was going up on the website, and then we put it there, which is where it has been since 12.30 pm.
Whatever the bluster from the Opposition Benches, it cannot mask the fact that we are taking a positive step forward on pensions today. We have launched what I think will be a landmark consultation. Clause 6 and schedule 3 will give us the time to get that consultation right over the summer and then bring forward legislation in the forthcoming Finance Bill to ensure that people have more flexibility in dealing with their pensions, because ultimately it is their money, which they have put aside for their retirement. We want them to be able to deal with the pot that they have built up in a way that suits them, rather than in a way that suits the country.
Interestingly, we had a brief discussion about the fact that 75 has been the statutory age for some time. It was first agreed in 1976, which is ironic, given the obviously parallels between Britain then and now, with the Labour Government then having to be bailed out by the International Monetary Fund and going on to leave a desolated economy. We are ensuring that we have sustainable finances in our country over the coming years, so hopefully we will reach a different end point from that of that Labour Government.
I very much welcome the fact that the shadow Minister nevertheless supports the consultation going ahead, and I can assure her that we are going to get on with it. We believe that eight weeks is plenty of time to get a response, given that the issue is one that people have been pressing Governments past—and now present—to address. We are a new Government, so we are getting on with adopting a new and improved approach to annuities and pensions, as we can see from today’s debate. I therefore very much hope that the hon. Lady will withdraw her amendment, so that the clause and the consultation can improve the legislation, creating more flexibility in pension law for the people who so badly need it.
Ms Eagle
I am not really that satisfied with the answers that the hon. Lady has given, as she will not be surprised to hear, after that brief reprise of the 1970s. My information is that the Finance Act 1921 introduced compulsory annuitisation and that the current age of 75 was introduced in 1956, which was a Conservative time, not a Labour time.
Regardless of the Minister’s point scoring, however, it is important that we take an appropriate amount of time to see how any changes to the annuitisation regime might work in practice. The Opposition have no objection to the idea of having a higher age. However, there is some scepticism about the practicality of having a minimum retirement income and how it might be worked out, although that is part of the consultation, which no doubt we will now all be struggling with over August. It is a shame that the information was not available in a more timely fashion, so that we could have done more preparation for this debate. Because the amendment seeks more information and because the Government seem to be rushing ahead so precipitously, we would like to press the amendment to a vote.
Question put, That the amendment be made.
Stephen Timms
I know that the hon. Gentleman is a chartered tax specialist, as was acknowledged at a reception last night, so I defer to his understanding of these matters.
The Bill is different from the IPSA scheme on a couple of points. The IPSA rules say that when Members are required to be at the House of Commons after 11 pm, non-London areas MPs who claim the London area living payment may claim for the cost of an overnight stay in a hotel, subject to an upper limit. Any MP, including London MPs like me and the Minister, may claim for the cost of an overnight stay in a hotel if it would not be reasonable to return to any residence, where they are required to be at the House of Commons because the House is sitting beyond 1 am. I do not understand the different tax treatment of those two situations. Under new section 292, liability for income tax is avoided only if the House sits beyond 1 am. That is fine for London MPs like me. If I made a claim for a hotel stay under the IPSA rules, the new section would exempt me from income tax on that payment. However, it seems a bit unfair to non-London MPs, in that the IPSA scheme allows them to claim for the cost of an overnight stay if the House sits after 11 pm, but the new section gives them an income tax liability on that claim unless the House sits after 1 am. I wonder why the rules have been drawn up in that way.
A second area where I am puzzled relates to travel expenses for children. I have no children, so I hasten to say that this has nothing to do with my personal arrangements. The IPSA scheme provides for travel and subsistence expenses in respect of travel for dependent children aged under 16, limited to 30 single journeys per child between the Member’s London area residence and the constituency residence in each year. The new section would exempt from income tax the cost of journeys by spouses or partners but not—as far as I can see—the cost of journeys by children. Why is tax payable on those expenses but not on the others?
Justine Greening
I shall briefly talk about what we seek to achieve with clause 7 and schedule 4, and then try to answer the specific issues raised by the right hon. Gentleman.
Clause 7 introduces schedule 4, which provides for the income tax treatment of certain expenses paid or reimbursed to Members of Parliament under the new MP expenses scheme introduced and administered by the Independent Parliamentary Standards Authority. For the main part, the changes introduced by the provisions are necessary to reflect the fact that expenses are no longer paid under a resolution of the House but instead are paid by IPSA under the authority of the Parliamentary Standards Act 2009.
As we are all aware, expenses paid to Members have come under close scrutiny over the past year, not just by the media and the public, but also by IPSA. In developing its new scheme, IPSA has taken account of the requirement of MPs to perform their duties both in their constituencies and in Westminster. It has decided that the expenses covered by the exemptions introduced by the schedule are necessary for the performance of an MP’s parliamentary functions.
The key provisions will broadly maintain the long-standing statutory exemptions for overnight accommodation and EU travel expenses that were introduced in recognition of the particular role of MPs. The provisions will codify elements of concessionary tax treatments that, because MPs are required to carry out their duties both in their constituencies and in the House, have applied for many years to certain UK travel expenses paid to MPs. Additionally, they will reflect IPSA’s decision to continue to reimburse some UK travel for MPs’ spouses and partners, albeit in more restricted circumstances. The schedule therefore puts the previous concessionary treatment on a statutory footing to allow those payments to continue to be made without tax being due. Finally, the provisions reflect IPSA’s decision to deal with payments for evening meals separately from general expenditure connected to overnight accommodation, and the schedule now introduces a specific exemption for the costs of meals reimbursed under IPSA’s scheme. Again, that maintains the previous tax treatment.
The right hon. Gentleman raised two issues—about late-night sittings and accommodation. He is right: there is indeed a difference. The IPSA and tax treatment is different for sittings that end after 1 am and for sittings that end between 11 pm and 1 am. For sittings that run after 11 o’clock, there is tax exemption for expenses incurred for overnight accommodation, because that is deemed by IPSA a necessary expense incurred in the MP role.
Non-London MPs who decide to take the London allowance—the London expense regime—are able to charge overnight accommodation if the House sits after 11 pm, as the right hon. Gentleman pointed out. However, that charge is not tax-exempt; it is deemed subject to normal tax treatment for any employee. A normal employee would not be able to claim a tax exemption if they chose to stay in a hotel because they had been working late. The rules for the House sitting past 1 o’clock are agreed with IPSA as necessary for the fulfilment of the MP role, so are tax-exempt. Before that, although MPs from outside the London area can get reimbursement for overnight costs, they are not tax-exempt. I hope that I have clarified the situation, even though some people might not agree that the tax treatment set out in the clause and schedule 4 is fair.
Children’s travel was not tax exempt under the previous scheme, and clause 7 and schedule 4 merely maintain the same tax treatment of children. However, the right hon. Gentleman was right to point out that the tax exemption for spouses will continue, albeit with some more restrictive conditions. Again, I hope that I have clarified the position.
As IPSA continues to develop its expenses regime over the coming months and perhaps years, we will obviously have to keep an eye on any changes and ensure that we determine whether we need to reflect them in tax law.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 8
Amounts not fully recognised for accounting purposes
Question proposed, That the clause stand part of the Bill.
Stephen Timms
Clause 8 and schedule 5 amend the corporation tax rules on loan relationships and derivative contracts that apply to amounts not fully recognised for accounting purposes. This is a good example of the way in which the obligations that the previous Government introduced in 2004 on the disclosure of tax avoidance schemes are bearing fruit by revealing forms of avoidance that represent loopholes that need to be closed, which is what the clause does. The intention behind the clause was announced by the previous Government at the time of the March Budget. The provision is tightly targeted. I am not aware of any adverse reaction, and I certainly support the clause, but will the Exchequer Secretary give us his assessment of how much tax avoidance will be prevented by blocking the loophole?
I was pleased that the coalition agreement included the commitment:
“We will make every effort to tackle tax avoidance”.
Clauses 8 and 9 are the first concrete signs of that commitment being delivered. However, will the Exchequer Secretary tell us a little more about how those efforts will be pursued and what is meant in the coalition agreement by the commitment to
“detailed development of Liberal Democrat proposals”?
If I understand correctly, Liberal Democrat proposals in this area include: changing the taxation of benefits in kind; increasing the proportion of HMRC time spent on income tax evasion; a new general anti-avoidance provision for corporation tax, with companies paying a commercial rate for HMRC pre-clearance—I imagine that that is being subsumed in the wider discussion about a general anti-avoidance rule; and legislating to establish the beneficial ownership of property that is sold to prevent the avoidance of stamp duty land tax. Will the Exchequer Secretary confirm what the coalition agreement meant? Are all those initiatives—
Oral Answers to Questions
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Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
9. What assessment he has made of the effect on low-income families of the implementation of the proposals in the June 2010 Budget.
The Economic Secretary to the Treasury (Justine Greening)
The right hon. Gentleman will be aware that the Budget was really about achieving two things: reducing the fiscal deficit and protecting the most vulnerable in our society. I am sure that he will welcome the fact that, as we heard earlier, we have reduced the personal allowance on income tax, which means that nearly 900,000 people have been relieved from paying income tax altogether. That has also benefited 23 million people working in Britain who will benefit by up to £170 a year. Additionally, he will recognise that we have taken steps to increase the child tax credit by £150 next year and £60 the following year, which will benefit some 7,200 households in his constituency. As a result of that, levels of child poverty after the Budget will remain unaffected.
Mr Clarke
Let us get back to reality. In view of the increase in VAT, the slashing of benefits and the changes proposed for the disability living allowance, does the Chancellor have any proposals that will mean that the poorest and most vulnerable in our society are not treated disproportionately?
Justine Greening
The right hon. Gentleman is right to raise the issue of poverty, but to pick him up on disability living allowance, just 5% of those on DLA have been receiving it for less than five years. We should be trying to tackle the root causes of poverty, rather than putting people in a poverty trap. I am sure that he would welcome, as I do, the fact that the right hon. Member for Birkenhead (Mr Field) will be leading a review into poverty, to ensure that we can do just that: tackle the root causes of poverty, rather than persist with just the symptoms.
Stephen Metcalfe (South Basildon and East Thurrock) (Con)
Will my hon. Friend comment on what she believes the effect on low-income families would be if we failed to deal with the £23,000 per person debt that we were left with by the former Government?
Justine Greening
I think that most people on the minimum wage would be shocked to hear that the amount of income tax that they pay every year is less than what the average taxpayer pays in debt interest. The best thing that we can do to help not just people on lower incomes, but all people, whether in or out of work, is to get our economy back on track. That means tackling the fiscal deficit, starting to bear down on waste in public services and also reforming public services, so that the money that we spend—money that taxpayers have provided to Government to provide public services—is spent effectively on delivering high-quality public services that they can use.
Mr David Hanson (Delyn) (Lab)
The choices that this Government have made on VAT increases, on cuts in child tax credit, on reducing maternity grant and on other public service cuts will hit the poorest people in the community the hardest. Will the Minister now publish in full the distribution analysis for the Budget, so that we can see the impact that it will have on the poorest in society, and see the difference that a Labour Government have made in comparison with this Conservative Government?
Justine Greening
The right hon. Gentleman clearly has not read the Red Book. I think that pages 66 and 67 show the distribution analysis in cash terms and as a percentage of income. We do not need to take any lectures from members of a Government who widened the gap between rich and poor.
Ian Swales (Redcar) (LD)
10. What steps his Department is taking to support economic growth in the north-east.
Kevin Brennan (Cardiff West) (Lab)
15. In what sectors of the economy he expects the export growth forecast contained in the June 2010 Budget to be achieved.
The Economic Secretary to the Treasury (Justine Greening)
The export growth forecast produced by the Office for Budget Responsibility did not break it down by sector. However, we know that in 2009 manufacturing accounted for just over half of our exports, so there is a big opportunity here. We currently export more to Ireland than to Brazil, India, China and Russia combined. That is why the Prime Minister met the Indian Commerce Minister earlier this month to talk about economic opportunities for us over there. Later this month, he will lead a taskforce of UK business men to India to investigate export opportunities.
Kevin Brennan
I am afraid that the Minister has not seen this morning’s report from Cambridge Econometrics, which examines the effect of the Budget on manufacturing, and predicts a decline in manufacturing share and an expansion in the financial sector to its highest share ever. Is that what the Minister means by rebalancing the economy?
Justine Greening
Many people would consider that a bit rich coming from a member of the last Government, given that manufacturing declined at a steeper rate under them than under the previous Conservative Government. We aim to support manufacturing and, indeed, companies throughout our country through a robust and ambitious corporation tax package, through progress on national insurance, and through largely getting rid of the jobs tax that the last Government would have introduced. What we would like to hear from the Opposition is more constructive discussion about how to improve our exports.
Charlie Elphicke (Dover) (Con)
In relation to export growth and other forecasting, will Ministers consider establishing a dynamic tax unit in the Treasury?
Justine Greening
One of the reasons why we set up the Office for Budget Responsibility was to ensure far more independent and transparent forecasting in relation to not just exports but all economic indicators. I am sure that over time the OBR will continue to develop that forecasting to make it even more effective. Let us make no mistake: setting up the OBR was a huge step forward in terms not just of transparency, but of robust data on which the public can really rely.
Chris Leslie (Nottingham East) (Lab/Co-op)
Will not our exporters be hurt by the slashing of the capital allowances that went to our manufacturing industries? Is it not a hallmark of the Government’s priorities that they would rather give £400 million cashback to the banks by cutting their corporation tax than support our small and medium-sized enterprises in their export activities?
Justine Greening
I am not sure whether the hon. Gentleman has talked to industry about its reaction to the Budget. I think that if he talked to the Institute of Directors, the CBI and the Federation of Small Businesses he would find that they welcome it, because they know it will help them to grow their businesses and grow employment. I only wish that the hon. Gentleman could recognise that and welcome it too.
Tony Baldry (Banbury) (Con)
16. What recent progress he has made on reducing the cost to the public purse of his Department’s non-departmental public bodies.
The Economic Secretary to the Treasury (Justine Greening)
When I looked into whether the Treasury had any non-departmental public bodies, I found that we had just one, the Royal Mint Advisory Committee, which comes up to London three times a year to advise the Chancellor on coin designs. I then tried to find out how much it cost the taxpayer. The answer is nothing, because its charges have been taken over by the Royal Mint, which is an arm’s length Government company. I hope that that answers my hon. Friend’s question.
Tony Baldry
Across Government, how many quangos are there, how much taxpayers’ money are they wasting, and how will they be made democratically accountable?
Justine Greening
The answers to my hon. Friend’s questions are “Too many”, “Too much”, and “Through the spending review and over the course of the Parliament.”
Amber Rudd (Hastings and Rye) (Con)
18. What steps he plans to take to support economic growth in the south-east.
The Economic Secretary to the Treasury (Justine Greening)
We will continue to ensure that we can support economic growth through the United Kingdom, including the south-east. As was made clear earlier, we have an ambitious package that contains a road map for reducing corporation tax year on year. I should point out that had the last Government remained in power, they would have left corporation tax as it is. Indeed, corporation tax for small companies would have risen at the very time we should be allowing companies to retain more of their profits to invest in their businesses.
As my hon. Friend will know, there is a regional growth fund that will help regions throughout our country to grow. We are also complementing the national measures that we are taking by seeking to ensure that local authorities working across various local partnerships can stimulate their own economies.
Amber Rudd
I thank the Minister for that answer. Is she aware that certain areas of the south-east have very high levels of public sector employment? I am thinking in particular of the town of Hastings in my constituency, where we have 43% public sector employment. What steps can be taken to help such areas of the south-east to benefit from the national insurance advantage proposed in the Budget?
Justine Greening
My hon. Friend makes a good point. If we are to get our economy back on track, particularly in areas such as that which she represents where there has been a growing imbalance and instability—and unsustainability as well—in the local economy, we must have a package of measures in place that can stimulate the private sector. I have set out some of those in terms of corporation tax, and my hon. Friend is right that the regional growth fund is another key investment fund that hopefully can help her area.
Clive Efford (Eltham) (Lab)
Should businesses in the south-east be concerned now that the Office for Budget Responsibility has made it clear to the Treasury Committee that the Budget increases the chances of a double-dip recession?
Justine Greening
I do not think the hon. Gentleman is right about that at all. The OBR clearly set out that it expects our economy to grow over the coming years. It expects unemployment to fall and employment to rise, and the hon. Gentleman should welcome that.
Jessica Morden (Newport East) (Lab)
T1. If he will make a statement on his departmental responsibilities.
Jessica Morden
Many small charities are extremely worried about the rise in VAT. Does the Minister think it is fair that charities be hit in this way?
The Economic Secretary to the Treasury (Justine Greening)
The hon. Lady is right to raise the issue of charities; in fact it is an issue in which we have taken a great interest coming into government. I hope she will welcome the fact that we are continuing with the gift aid forum, which brings together a range of people interested in charities and charity tax to look at how we can stimulate gift aid and make it more effective over the coming years. The hon. Lady is also right about the impact of VAT on charities, but we have to sort out the economic mess the last Government left us, and the best way to sustain the funding of charities is to make sure people have jobs and money in their pockets that they feel they can donate.
Duncan Hames (Chippenham) (LD)
T2. Does the recent experience of changes in VAT rates support the assumption of both the Treasury and the Institute for Fiscal Studies that there will be full pass-through of the proposed increase in VAT, or might we reasonably hope that large retailers will shoulder some of the burden?
Finance Bill
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Mr Meacher
I have never believed what some Laffer economists say, which is that increasing taxes on the rich results in a reduction in the net income. I believe that that is based on a false premise.
The Economic Secretary to the Treasury (Justine Greening)
Can the right hon. Gentleman explain why his Government failed to narrow the gap between rich and poor?
Mr Meacher
I regret that the Labour Government did not succeed in narrowing the gap between rich and poor. However, they did something quite remarkable in reducing the number of children in poverty by 600,000. No, it was not enough, and we fell below our target. I can tell the hon. Lady why the gap widened, however. To cite a phrase that was used early on in the Labour Government, new Labour took the attitude that it was fairly unconcerned about people becoming filthy rich. That was a serious mistake, and the increase in the wealth of the tiny top segment of the population has been enormous. That is the reason that the gap increased.
United Kingdom Debt Management Office
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The Economic Secretary to the Treasury (Justine Greening)
The United Kingdom Debt Management Office (DMO) has today published its business plan for the year 2010-11. Copies have been deposited in the Libraries of both Houses and are available on the DMO’s website, www.dmo.gov.uk.
Budget Resolutions and Economic Situation
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The Economic Secretary to the Treasury (Justine Greening)
Mr Deputy Speaker, may I start by saying what a pleasure it is to give my first speech as a Minister with you in the Chair? I thank the hon. Member for Wallasey (Ms Eagle) for her kind words. I very much enjoyed debating with her when I was the shadow Minister and I look forward to continuing to do so in government.
We have had a good debate this afternoon and evening. It was broadly meant to be about the Budget in relation to the environment, but we have not heard a lot about that, apart from in the thoughtful speech made by the hon. Member for Southampton, Test (Dr Whitehead). The hon. Member for Eltham (Clive Efford) said that there is little on the environment in the Budget, but given that the Labour Government had stalled on reducing emissions and wanted to go ahead with polluting measures such as a third runway at Heathrow, I am not surprised that the shadow Secretary of State for Energy and Climate Change failed to mention the environment in the half hour that he was on his feet.
I wanted to start by reflecting on the many speeches—23 or 24, by my count—made today, in particular some excellent maiden speeches. I was delighted to hear from my hon. Friend the new Member for Staffordshire Moorlands (Karen Bradley), especially when she said that she is an accountant. Speaking as an accountant myself, I think that this House needs more of us, and I dare say the Opposition could do with a few more as well, so that they can start adding up properly.
We also heard a great maiden speech from my hon. Friend the new Member for Hendon (Mr Offord). I remember his predecessor—indeed, I think I was present in the Chamber during that very long speech he made. If it is the one I remember, it was about animal welfare and lasted more than two and a half hours. On that occasion, the hon. Gentleman said how sad he was that his dog had died, and I intervened at one point to ask whether the dog had died of boredom. He said that it had not.
The new hon. Member for Kingston upon Hull East (Karl Turner), who is no longer in his seat, made a really good maiden speech. I hope he does not go around hitting people like his predecessor did, but his predecessor was certainly a colourful character, who brought his own personality to this place. We will see whether the new Member for the constituency can match him.
I thought the maiden speech of my hon. Friend the Member for Camborne and Redruth (George Eustice) was excellent, especially when he talked about how it is often individuals—their drive, initiative and creativity in working to tackle climate change and developing new technologies—who make all the difference. We should never forget—we on this side of the House certainly do not—that it is individuals who make the difference, not always Government alone. The latter theory has been tested to destruction by the Labour party.
We have heard a number of other speeches this afternoon, not least that of the shadow Secretary of State for Energy and Climate Change, who seemingly failed to mention anything about the environment. I have to say that the public watching the debate and hearing all the contributions from Labour Members would not have thought that they had just been through an election that they lost. It is as though they have learned nothing. They have not even paused to reflect on the message that they have just been given by the British people. They have handed over to this coalition Government an absolute basket-case of an economy, and what we have heard from Labour Members today is what we heard when we were in opposition: they always know better. They knew better in government and now they know better in opposition. They know better than the British Chambers of Commerce, which said
“The Chancellor’s message that Britain is open for business will be welcomed by companies the length and breadth of the country, and across the globe”.
They know better than the CBI, the Federation of Small Businesses, the Governor of the Bank of England, the G20 and the EU, which says that countries such as ours need to get on faster with reducing their fiscal deficit.
Clive Efford
Would the hon. Lady care to comment on a quote from the right hon. Member for Wokingham (Mr Redwood), who urged people hit by budget cuts to wear more clothes, turn down the thermostat and eat more vegetables? Is not that just about the most damning indictment of the Budget that we could have, from one of her own colleagues?
Justine Greening
The hon. Gentleman continues in the vein that the Opposition have adopted today, which is to try to score cheap political points. The message from the British public at the last election was that they want a constructive debate about how to solve the deep financial crisis that our country faces. We have had nothing from the Opposition. No alternative is being presented to all of the measures that were raised as concerns by Opposition Members. I presume that we can now start ticking them off as measures that the Opposition would say a Labour Government would take. We will rapidly reach the conclusion that there are no measures that the Opposition would take to solve this deficit. After all, they were happy to cancel their spending review, and now they are happy to play no role in having a constructive debate with the public and the Government about how we dig ourselves out of this mess. It is simply not true to say that the Opposition had no role in it. We were running a deficit long before the global crisis hit. That is why we went into the recession first, that is why we came out of it later, and that is why our recession was deeper. We have now had the longest and deepest recession since the second world war under the Labour Government. We need take no lectures from them.
Matthew Hancock
Does my hon. Friend agree that the Labour party’s views tend to be based on misrepresentations? For instance, I think that the shadow Minister said that according to the Office for Budget Responsibility on almost every measure things were better, but on the crucial measure of the size of the structural deficit, which is the measure that will not come back with economic growth, things are worse, and that justifies the position that the Government have taken.
Justine Greening
My hon. Friend is absolutely right. Let us just talk about the Office for Budget Responsibility. I still cannot quite work out whether the Opposition support it. I am happy to take an intervention from the shadow Secretary of State to clarify that. We are none the wiser.
On the point about changing forecasts, and the OBR forecast pre-Budget and its forecast on the Budget, let me be clear about what it said about comparing those two forecasts. If the Opposition have any shred of credibility, I hope that they will pay attention to this. At the bottom of page 94 of the Red Book it says it is
“misleading to interpret the difference between the pre-Budget and Budget forecasts as the economic impact of the Budget measures.”
The Opposition want it all ways. They want to quote some figures and, as my hon. Friend says, conveniently forget the key figure, which showed that the structural deficit was worse. They want partially to welcome it warmly, but to ignore what it says about the impact of comparing false statistics. They do the debate, which is important for people throughout the country as we go through an incredibly difficult process, a real disservice, because the British public need them to play a role, which should be for them as the Opposition to come up with some constructive comments. It would have been better if they could have come up with some kind of an alternative, but we have had none today.
We need take no lectures from the Opposition about fairness. This is the party that did a pensions raid. This is the party that came up with the 10p tax fiasco. This is the party that widened the gap between rich and poor. This is the party that told us we had an end to boom and bust. It is no wonder the savings ratio in Britain went down. If people had listened to the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—who knows where he is now?—they would never have thought that they needed to save for a rainy day. The British people get it, because they have started paying down their debts, but the Opposition parties have totally missed the point. They seem to be living in a post-election bubble, and they have not taken a moment even to reflect on what has happened or on the verdict of the British voters, let alone to reach the stage at which they might apologise for the mess that they handed over to the coalition Government. The two parties in government have taken the decision that they need to work together for the British public’s interest in order to find a resolution to our crisis, and to get ourselves out of this financial mess.
Toby Perkins
The hon. Lady has referred to the election result a couple of times, but we remember the election result in 1997 after a long period of Conservative Government, when that party lost so badly that it was out of power for 13 years. If people were so dissatisfied with the Labour Government, how come the Conservatives could not even secure a majority?
Justine Greening
The hon. Gentleman, if he is not careful, might be projecting the political fate of his own party. With this Budget, we want to ensure above all else that we start addressing our country’s dire financial situation. By the end of this Parliament, we will have started to return to a sustainable set of public finances which puts us in a position to make sure that our debt is more affordable. He might think it acceptable that the average taxpayer pays almost £1,400 in interest to service the debt that his party racked up, but I do not, and over a period of years we want to get into a position where our debt is affordable once again. The process will not be quick; it will take us time, because of the gravity of the situation.
Let us make no mistake: we have no time to wait. Before the election, we had only to look across the water at some of our European partners to see what was happening to their countries. I shall draw an analogy, because in Spain the equivalent of the bank manager—the markets—said that they simply were not willing to lend to that country at the same rate of interest as previously. That debt now costs Spain’s taxpayers millions of pounds more in interest than it did when their credit rating was better. Greece has gone one step further and, effectively, has the bailiffs knocking on the door.
Our Budget was all about ensuring that we do not reach the position where the bank manager says that he is going to raise interest rates on us. We as a nation cannot afford it, and British households cannot afford it. We definitely do not want to reach the stage where we have the bailiffs knocking on the door, which is what has effectively happened in Greece. I am concerned, however, because in spite of everything that has happened in our country, including the election and the state of our public finances, we have still not heard a meaningful debate from the Opposition.
Dr Whitehead
As the subject of today’s debate is supposed to be energy and climate change, I wonder whether the hon. Lady has anything at all to say about the extent to which the Budget might facilitate a recovery towards a low-carbon economy, or whether, as I suspect the case may be, she does not.
Justine Greening
I am pleased that the hon. Gentleman has given me the chance to finish on that subject, because I wanted to take the time to talk about the environment in the context of the Budget.
We have said that we are determined to make progress on setting up a green investment bank; we have talked about ensuring that the green deal works, because it is critical that our housing stock be made more environmentally friendly; and, of course, the final piece of the Budget was about ensuring that we can move to a low-carbon economy that does not just put our energy strategy on a more sustainable footing, but includes the jobs that can be part of the green enterprise economy that we want to set up.
The hon. Gentleman was right to raise the matter, because too often the issue of climate change and the environment has been exclusive—the idea being, “If you can afford to save the planet, you can do it.” We want to make sure that everybody in our country is able to be part of tackling climate change. That is why the green deal and the green investment bank are so important. The supply side of technologies is critical in ensuring that these markets can get the finance they need. I can absolutely assure the hon. Gentleman—
Oral Answers to Questions
Justine Greening Excerpts(13 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
John Robertson (Glasgow North West) (Lab)
2. If he will assess the merits of increasing the level of financial assistance to pensioners through the tax system.
The Economic Secretary to the Treasury (Justine Greening)
This Government are committed to supporting pensioners to ensure that they can live with the respect and dignity they deserve. We have already said that we will restore the earnings link, protect key pensioner benefits and ensure that the retirement age can rise if pensioners want to continue working in order to support themselves. We think that, despite the fiscal deficit left to us by the former Government, that is the fairest way to proceed.
John Robertson
I thank the hon. Lady, and welcome her to her position—but I am somewhat disappointed in her answer, because she has not identified exactly how she will support our elderly people at a time when cuts will be made all over the country and will affect everyone, including pensioners. What priority will she give to pensioners? What kind of increased payments will be made to cover some of the cuts, which will hit pensioners harder than anyone else?
Justine Greening
The hon. Gentleman seems to have missed the fact that this Government are having to tidy up a huge financial mess left to us by the previous one. We have made it clear that, despite that mess, we want, first, to protect key pensioner benefits—the benefits that Labour Members claimed we would take away—such as free bus passes, free prescriptions, free eye tests and the winter fuel allowance. That is a range of benefits that the Labour party said we would remove, but we are going to keep them. I can assure him on that, so he can go back to the pensioners in his constituency and explain why he was telling them mistruths during the last election.
Neil Carmichael (Stroud) (Con)
3. What steps his Department is taking to reduce the level of the budget deficit.
Ann McKechin (Glasgow North) (Lab)
8. What recent discussions he has had with the Secretary of State for Work and Pensions on the future of Government targets to eradicate child poverty; and if he will make a statement.
The Economic Secretary to the Treasury (Justine Greening)
The coalition Government have announced that they want to see an end to child poverty in the UK by 2020. We now have 1.9 million children living in workless households in the UK. The OECD says that we have the highest proportion of children living in workless households of any OECD country—nearly 18%. That is one of the reasons why my right hon. Friends the Chancellor and the Secretary of State for Work and Pensions have been discussing that matter. One of the early outcomes of those discussions, as I am sure Members will be aware, is the announcement of the review by the right hon. Member for Birkenhead (Mr Field) of child poverty and life chances. We think that that will be an informative way of engaging people in the debate, and of coming up with some policy options, which we can then feed into our consideration of child poverty.
Ann McKechin
The hon. Lady will be aware that disabled children are much more likely to live in poverty and have much reduced life chances. Given that, and given her Government’s decision to abolish the child trust fund, can she tell me how many disability organisations they consulted prior to that decision, and what assessment they have made of the impact that that decision will have on thousands of disabled children throughout the country?
Justine Greening
We are providing support for disabled children and their families. In fact, regarding the child trust fund, part of the package was the funding of 8,000 extra week-long breaks for the parents of disabled children—breaks that we know are well valued.
Mr Julian Brazier (Canterbury) (Con)
Does my hon. Friend agree that the main reason for the scale of child poverty in this country is that we have inherited a benefit system that punishes thrift, work and traditional families? If the right hon. Member for Birkenhead (Mr Field) does indeed think the unthinkable, will we, unlike the previous Government, support him?
Justine Greening
Unlike the previous Government, we all recognise that child poverty is about much more than just money. If we are to be successful in improving children’s life chances, wherever they start their lives in this country, we need to look at a little bit more than the child tax credit; we need to look far more broadly. We need to look at issues around health and education. That is one of the matters that we will consider over the coming months. It is vital to realise that if we do not tackle the root causes of child poverty, we are very unlikely to tackle the symptoms. Of course, the ultimate way of tackling child poverty is sorting out our economy and getting people back into jobs, so that children are not in workless households in the first place.
Mr David Hanson (Delyn) (Lab)
Under the previous Conservative Government, child poverty doubled; thanks to the efforts of the Labour Government, with the minimum wage, working families tax credit and child benefit rises, 500,000 children were taken out of poverty. Today, will the Minister, whom I welcome to her new position, not just commit to tackling the targets that the Labour Government set, but support the means—the minimum wage, working families tax credit, and child benefit?
Justine Greening
The previous Government managed to raise a number of children who were just below the poverty line just above it, without tackling the fundamental causes of why they were in that position in the first place. What is particularly depressing is that it is as if nothing has been learned from the experiment of the past 13 years. Clearly, we need to look more broadly, rather than just at giving households in poverty money. We need to help them to get back into work. It has to be wrong that in this country, the marginal tax rates for those in low-income families who are going back to work can be in the 90th percentile range. We would never dream of taxing people who are rich that much, but we tax people who are poor at those rates.
Charlie Elphicke (Dover) (Con)
10. What recent assessment he has made of the level of growth in the UK economy compared with those of other OECD countries.
Simon Kirby (Brighton, Kemptown) (Con)
17. What his policy is on taxation of the bingo industry; and if he will make a statement.
The Economic Secretary to the Treasury (Justine Greening)
We keep all taxes under review. It would not be appropriate to discuss taxation in relation to bingo before the Budget in a couple of weeks, but we are keen to have a dialogue with the industry.
Simon Kirby
Does the Minister agree that sometimes it is possible to increase revenue by reducing taxes?
Justine Greening
I think that my hon. Friend is probably referring to the well-known Laffer curve. I am sure that he is aware, too, that the tax on bingo participation clubs was reduced in the last Budget from 22% to 20%. As I said, I look forward to talking to the industry over the coming months.
Kelvin Hopkins (Luton North) (Lab)
Is it not the case that bingo is taxed more severely than other more dangerous forms of gambling, and that the Government would do well if they at least brought them into line?
Justine Greening
I know that that argument has been made by the industry, and I am aware of its campaign on fair taxation. We want fair taxation. One of the Government’s key priorities is tackling the budget deficit, and ultimately the best way for us to support not just bingo clubs but other companies in Britain employing staff is to get the economy back on its feet, creating jobs so that people have money in their pocket to spend, including in bingo clubs.
Mr Peter Bone (Wellingborough) (Con)
18. What recent representations he has received on the level of the budget deficit.
The Economic Secretary to the Treasury (Justine Greening)
We have received a number of representations on the budget deficit, not least from many other European countries, which are now taking steps, as we are, to reduce their deficit—a point that still seems lost on the Opposition.
Mr Bone
I am grateful to my hon. Friend for answering my question and for her arrival at the Dispatch Box, which is very welcome on our side of the House. Will she take a representation from me on reducing the Budget deficit? Can the emphasis be put on cutting public expenditure, rather than increasing taxes? Does she have any idea of the proportion that will be raised by tax increases and by public expenditure cuts?
Justine Greening
We have said that we want to see the bulk of the deficit reduced by restraining public spending. I know that a number of other countries have taken proportions of roughly 80%:20% on restraining public spending and increasing taxes. We are particularly keen to cut out as much of the waste as possible. As we work our way through the previous Government’s horrific spending plans—not that they had any projections into the future—we will do our best to make sure that we do not just bring down our public spending, but use this opportunity to ensure that it delivers better public services for the public whom it is there to serve.
Mr Clive Betts (Sheffield South East) (Lab)
In The Sun the Deputy Prime Minister wrote about the enticing prospect of progressive cuts. Can the hon. Lady explain what a progressive cut would look like?
Justine Greening
The hon. Gentleman might be better off directing that comment to the Deputy Prime Minister. I did not see it in the paper. We are conscious of the need to make sure that we can protect front-line services that people depend on. We have already debated pensions this morning, for example, and we are doing our best to protect money that supports the most vulnerable in our society.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
T1. If he will make a statement on his departmental responsibilities.
Kerry McCarthy (Bristol East) (Lab)
T5. I was disappointed to see no mention of the credit union movement in the coalition agreement. Although I admit that I have not yet got my head around what the big society is, I hope that there is a role in there for the credit union movement. When can we expect the Legislative Reform (Industrial And Provident Societies and Credit Unions) Order 2010 to be laid before the House?
The Economic Secretary to the Treasury (Justine Greening)
We do support credit unions. In fact, one of the first things that the new Secretary of State for Wales did on her appointment was to visit her local credit union in Wales. We have said that we want vibrant, sustainable credit unions. We are looking at the legislative reform order to which the hon. Lady referred and I hope that we can come back with some further dates in the next few weeks. As she can imagine, the focus right now has been on the emergency Budget, but I am aware of the order and officials are talking to me about the time lines for it.
Mr Mark Williams (Ceredigion) (LD)
T4. There was great relief in the tourism sector when the furnished holiday lettings rules were scrapped just before the election in the wash-up. What will the Government do to ensure that the rules are EU compliant, but do not disadvantage tourist operatives in the way that it was feared that the old rules would do?
Bob Russell (Colchester) (LD)
T9. Further to excellent question of the hon. Member for Bristol East (Kerry McCarthy), can the Minister who was briefed to answer the excellent Question 25, in my name, now give a more substantive answer? What will the Government do to support credit unions such as the excellent one in Colchester?
Justine Greening
The best thing that we can do to support credit unions is make sure that they are on a sustainable footing. When I talk to Conservative Members, many of them say that they want to see their credit unions merge. We need to ensure that credit unions can offer a broader range of products to local people, and we need to look at how credit unions operate. Interestingly, although complaints to the financial services ombudsman are broadly increasing, when it comes to credit unions they are falling. The most recently released statistics show that just one in 66,000 complaints related to a credit union. The hon. Gentleman is right to ask how we can support credit unions. The Prime Minister has been supportive of them and we look forward to seeing what more we can do to support them over the coming months.
Mr Dennis Skinner (Bolsover) (Lab)
If everybody has to share the burden of cutting the budget deficit, will the Chancellor start at the very top, and call upon the royal family to tell them that under no circumstances will they get a single penny of the £7 million increase that they are demanding in the civil list?