The Economy

Debate between Luke Graham and Peter Dowd

Thursday 22nd March 2018 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I do not know how the Chief Secretary managed to keep a straight face throughout that speech, and I am confused, too: listening to her, I thought I was in some sort of utopian democracy, but I am afraid it is completely not like that. It is a little over a week since the Chancellor stood up in the Chamber and delivered the first spring statement, proclaiming that there was light at the end of the tunnel, yet at the same time the Government have presided over the slowest recovery since the 1920s. The Chief Secretary did not mention that, so it is no surprise that for many people across this country her words rang hollow and untrue. The Tigger-like demeanour of the Chancellor and the back-slapping and self-congratulatory tone of his Cabinet colleagues, rather than reassuring an increasingly fearful public, reek of a complacency that betrays the poor state of the public finances and the challenges our economy faces.

The Chief Secretary referred to facts so let us have a few, because the facts do speak for themselves. Last year growth in the UK economy was the lowest in the G7 and the slowest since 2012. Inflation is the highest in the G7. Despite the marginal upward revisions last week, the Office for Budget Responsibility has revised forecast growth down in both 2021 and 2022, and growth is lower in every year of the forecast compared with March 2017. Those are a few facts I thought I would chuck in.

Meanwhile the economy, according to the Institute for Fiscal Studies, will now be 3% smaller in 2020-21 than was forecast just two years ago. Another fact: real wages have fallen every month in the last year and are lower today than they were in 2010. The OBR has said that it expects wages to remain subdued—an understatement if ever there was one—over the next five years, and the Resolution Foundation has gone further, arguing that the last decade has been the weakest for average earnings in two centuries after adjusting for inflation. So that is a strong economy, is it? It does not look very strong from where I and millions of other people sit.

Meanwhile, personal debt, which has risen to worryingly high levels, and stronger world growth are helping to keep the show on the road, masking just how useless the Government’s economic policy is. The reality is that the Government’s bluster and bravado are fooling no one, particularly at a time when their failed economic policies continue to harm the UK economy and not just the most vulnerable in society, but millions of people who are in work.

Whatever positive spin the Chancellor and the Chief Secretary want to put on it, this Conservative Government have missed every deficit target they have ever set. [Interruption.] It would be a lot better than under this Government; they have not really invested, and the investments they have made are pretty poor. Public sector borrowing is still higher than forecast a year ago, and public sector debt is over £700 billion higher than when the Conservatives came to power. This is hardly a record of economic competence, but is instead reflective of just how out of touch Ministers are. And may I remind the Chief Secretary that they supported all Labour’s financial spending plans in 2007-08?

[Luke Graham (Ochil and South Perthshire) (Con)]

Does the hon. Gentleman not find it a little ironic that he is criticising my colleagues on this side of the House when his own party’s plans would plunge our country into even more debt, which we would be paying off for another two generations?

[Peter Dowd]

The hon. Gentleman is living on the same fantasy island as the Chief Secretary to the Treasury.

Outside the corridors of Whitehall and the Conservative cocktail parties, the reward for such a consistent record of failure in any job would be the boot. Instead, this divided and increasingly paralysed Government linger on, propped up by the Democratic Unionist party, with not much of a legislative agenda to speak of. It is almost like being on a zero-hours contract, which I know the Chief Secretary to the Treasury loves, while still being paid. It is clear that the Government are running scared. It is been seven weeks since the Public Bill Committee stage of the Taxation (Cross-border Trade) Bill, yet there is still no sign of Ministers putting it before the House for its Report stage. They are frightened to death to come to the House on that matter. Instead, we have been subjected to the reckless and misinformed musings of the Transport Secretary, who has speculated that customs checks will simply not be enforced at the port of Dover. Similarly, Ministers have refused to bring back the Trade Bill, at a time when President Trump is on the verge of starting a trade war.

--- Later in debate ---

[Peter Dowd]

Look, the reality is that the economy is not growing to the level it should be, because this Government are not investing in it. Actually, something like 50% of the growth in the economy is going to the most well-off 10%, and that is not reasonable. It is not fair. I ask the hon. Gentleman to bear those figures in mind. It is not simply a question of the growth in the economy; it is a question of where that growth goes and whether it is being shared out reasonably.

[Luke Graham]

Given that we are talking about growth figures, will the hon. Gentleman welcome the export boom in the north-west that has seen exports increase in the billions for Cumbria and Liverpool?

[Peter Dowd]

Of course, and I am glad that the Chief Secretary mentioned the port of Liverpool, which is actually in my constituency. She should have popped in for a cup of tea.

Finance (No. 2) Bill (Fifth sitting)

Debate between Luke Graham and Peter Dowd

Tuesday 16th January 2018 Public Bill Committees

[Peter Dowd]

My hon. Friend makes a valid point that goes to the heart of much of today’s discussion: those who seek to avoid should pay appropriate penalties.

The slowness of HMRC to respond to growing fraud online has been criticised by the Public Accounts Committee, which raised concerns first in April 2013 and more recently in October 2017. It is not alone; the National Audit Office reported in 2013 that

“HMRC had not…produced a comprehensive plan to react to the emerging threat to the VAT system posed by online trading.”

The report found that HMRC had developed tools to identify internet-based traders and launched campaigns to encourage compliance, but had shown less urgency in developing an operational response to it.

Trader groups, such as the Chartered Trading Standards Institute, have been raising concerns for many years, and claim that online VAT fraud has been a problem from as early as 2009, yet the Government did not recognise the problem until 2015. Nearly three years later, the Government are finally introducing measures that will force the Amazons and eBays of this world to be held jointly accountable for the VAT of online vendors that use their sites.

My understanding is that HMRC has instead pursued civil operations against suspected evaders, as HMRC claims that difficulties in prosecuting suspected online fraud make that route lengthy, costly and uncertain of outcome; I suppose that is justice. Barriers include sellers being based outside the EU, and the need to show intent to commit fraud. I would like to ask the Financial Secretary to the Treasury how many operations HMRC has pursued since 2015, and what their outcomes were.

The Public Accounts Committee report on online VAT fraud found that HMRC had only recently begun to take the problem seriously, despite the fact this fraud leads to significant loss of revenue to the Exchequer, in effect depriving our public services of the funds they so desperately need. The Committee found that HMRC, rather than trying to use its pre-existing powers, waited until the introduction of new measures under the Finance Act 2016 before it attempted to hold online marketplaces responsible for VAT that had been fraudulently evaded by traders. HMRC has been too cautious in using those powers, and the Government have refused to name and shame non-complaint traders; so far, to my knowledge, they have not prosecuted a single one for committing online VAT fraud.

Professor de la Feria, an expert in tax law at the University of Leeds, pointed out that HMRC has not been doing enough to tackle the problem, despite the required legislation being in place. She argued that laws existing before the introduction of the 2016 measures provided scope.

[Luke Graham (Ochil and South Perthshire) (Con)]

As a member of the Public Accounts Committee, I was at the hearing on VAT fraud. Does the hon. Gentleman not recognise that VAT is incredibly difficult to police, especially on e-commerce platforms, given the international nature of a lot of the trade, including by small traders in China? Does he not accept that changes put forward in the Budget address some of the concerns that the Public Accounts Committee raises, and mark a positive step on the Government’s part?

[Peter Dowd]

Yes and yes, but that does not alter the fact that we need to push on as much as we can with tackling this issue. The amendments go some way towards helping and, importantly, towards sending a message to those who choose to evade VAT. In online marketplaces and fulfilment houses, fraudulent activity continues fairly unabated, and we must do something about it.

Professor de la Feria also believes that part of the reason that HMRC has been slow to tackle online fraud is that it is most likely considered not cost-effective to pursue it. Online marketplaces and HMRC are not doing enough together to tackle the problem, notwithstanding the action that has been taken. Online marketplaces continue to earn their commissions, and so their profit, from people who are defrauding the British taxpayer. Amazon, for example, organises regular presentations at Chinese fairs—a point referred to by the hon. Member for Ochil and South Perthshire—to recruit overseas sellers, I suspect; has plans to buy a shipping company; and fulfils orders and handles payments. That all suggests a very embedded relationship with the seller. Those connections and networks are there; people must know each other to set them up. HMRC should use those relationships and networks to do something about the problem.

Until we can incentivise online marketplaces to act, they will continue to offer a lacklustre approach to tackling online VAT fraud. In September 2016, HMRC introduced new legal powers to tackle online VAT fraud and error. They allow HMRC to issue a warning to online marketplaces about potential sellers who are not paying VAT. Since their introduction, how many times has HMRC used the new powers? How many sellers has HMRC issued a warning about, and what was the result of the use of the powers? Since they were introduced, HMRC has seen an increase in the number of new VAT registrations from non-EU sellers, but HMRC confirms that it is not aware of the proportion of those sellers that have in the past been trading and not charging VAT, or whether those sellers will be compliant in future. Last year, HMRC told the Public Accounts Committee that it expected to collect £50 million more VAT in 2017 from the traders that had recently registered for VAT, so can the Minister confirm that HMRC has collected that money, or is on course to do so?

According to HMRC, some online VAT fraud is due to a lack of awareness, some overseas sellers being unaware that they need to pay VAT. Both Amazon and eBay, when testifying to the Public Accounts Committee, agreed with that view and described the lack of awareness of VAT rules as a major element of the problem. What efforts has HMRC made to educate sellers in the UK about potential VAT fraud? More importantly, what efforts have been made to ensure that overseas sellers are aware of the need to pay VAT?

The other part of the problem stems not from error, but from clear criminality. HMRC’s strategic threat assessment, carried out in 2014, concluded that it was highly likely that organised criminal groups based in the UK and overseas sellers in China were using fulfilment houses to facilitate the transit of undervalued or misclassified goods, or both, from China to the UK for sale online. It is particularly concerning that HMRC is uncertain of the exact number of fulfilment houses in the UK. Surely one of the first parts of cracking down on this criminality is establishing the exact number of fulfilment houses in operation. That goes some way to dealing with the point made by the hon. Member for Ochil and South Perthshire. Perhaps the Minister can take a minute to explain what steps HMRC is taking to address the issue and crack down on organised criminal groups in the UK and other countries, and what efforts Border Force is making to tackle online VAT fraud by targeting fulfilment houses, where the goods are stored.

Once again, it seems that HMRC is hampered by the Government’s cuts to staffing and resources, and that this is having an impact on the Government’s ability to crack down on online VAT fraud. According to the Public and Commercial Services Union—HMRC’s trade union—in real terms, after the cost of inflation is taken into account, the resources available to HMRC are about 40% less today than they were in 2000. Since 2010, under this Government, HMRC’s staffing has fallen by 17%, and it is set to fall further under the “Building our Future” programme. These are important factors in relation to tackling evasion. That programme will close practically the entire departmental estate of 170 offices. How will that help with tackling the mass of VAT crime?

The elephant in the room is the added uncertainty about Brexit and its impact on the effectiveness of the measures. There is considerable uncertainty about the exact terms on which the UK will leave the EU, so it is vital to get to grips with this. Sellers based in the EU may end up operating under the same VAT terms as apply to non-EU sellers and therefore may also be tempted not to charge VAT. Perhaps the Minister can offer insight into what steps HMRC is taking to ensure that these measures will be robust, irrespective of the outcome of the Brexit negotiations.

There are already considerable control weaknesses at the border. The most recent European Anti-Fraud Office report on customs duties was scathing about the state of UK customs, arguing that “continuous negligence” has deprived the EU of almost £2 billion in revenues on lost Chinese merchandise. According to the report, British customs played a central role by repeatedly ignoring warnings to take action over Chinese textiles and footwear pouring into the EU. Since then, HMRC has failed to open any criminal investigations into specific fraud schemes. The European Anti-Fraud Office is so aggrieved with the UK Government that it has recommended to the European Commission’s directorate-general for budget that the UK should be forced to pay £2 billion directly into the EU budget.

Public Sector Pay

Debate between Luke Graham and Peter Dowd

Monday 4th December 2017 Westminster Hall

[Peter Dowd]

My hon. Friend, as ever, has hit the nail right on the head. It is all talk and no action.

[Luke Graham]

I thank the hon. Gentleman for giving way, he is being too friendly this afternoon. He asks for a Conservative, well there is one stood right here who, along with many Scottish colleagues, supported the pay cap reviews in London and in Edinburgh. It was announced in the Budget that, certainly from a UK Government perspective, according to the pay boards, they will have the flexibility to lift those pay caps. If they want the evidence, we are right here.

[Peter Dowd]

The voice of the lonely. That is what I would say: the voice of the lonely.

The IPPR and Unison have both provided research that demonstrates that lifting the cap would bring higher tax receipts and lower welfare payments. That has been suggested and indicated by other Members, and they are absolutely right. It would bring real money into the economy. We know that. Why do the Tories not accept it? Let me be clear, on cutting public sector pay, the Chancellor virtually stands alone. Ten years on from the international banking crisis, countries that instituted public sector pay freezes or pay cuts have all reversed them, including the likes of Germany and the United States. Once again, the Conservatives are left behind.

In their written response to the petitioners who triggered this debate, the Government said:

“We still need to deal with our country’s debts…to enable us to invest in our public services.”

They are not even doing that. Hon. Members should look at the Red Book: that is not being delivered. Again, they are the all talk, no action Government. They have not only borrowed more money than any other Government before, but have failed to invest in our public services and those who work in them. We all know it. The country will not run a surplus until 2030—batted off again—at the earliest, a full 15 years after the former Chancellor said the deficit would be eradicated.

So where are we? We cannot afford any rise for our public sector workers but, as has been alluded to, we can afford to relax the bank levy to the tune of the best part of £2 billion a year by 2022. We can also afford to relax corporation tax and other taxes for corporations worth the best part of £70 billion over the next five years. As has also been alluded to, we can afford to pay £3 billion for a botched EU Brexit that should have been sorted out months ago. That has cost the country because of the useless way the Government have dealt with it. We can afford, as we have found in the last two or three days, to pay out £2 billion to east coast line companies. We can afford that; just pick that up, it is no problem at all. We can afford to sell off the Royal Bank of Scotland at a loss of billions upon billions of pounds. The taxpayer picked up the bill for that, and it is the bank putting straight back into the hands of those who caused the problem in the first place. That is the reality, and as we come to the end of another miserable, cold, dark year under the Tories, we cannot afford to pay our public sector workers a decent wage.

I simply say, as I have said time after time and will continue to say: the sooner this Government get their marching orders, the better for all of us. I suspect the Government are in that position themselves, but I am not interested in the Government: I am interested in public sector workers.