Finance (No. 2) Bill

Lord Jackson of Peterborough Excerpts

Thursday 18th April 2013 Commons Chamber

[Cathy Jamieson]

I am interested to hear that the hon. Gentleman has some sympathy with our proposal—I suspect that we might not have the same agreement over some of the other issues up for debate today. He raises important issues. That is why, through new clause 2, we want to ensure that a report would be produced. We are calling on the Government to do that now, rather than put it off into the future. The Government could put in place monitoring measures now; that would allow for a temporary VAT cut, which would help stimulate the economy.

Borrowing to pay for the cost of economic failure has risen—it is now forecast to be £245 billion more than planned at the time of the spending review. That, of course, excludes the one-off transfers of the Royal Mail pension fund and asset purchase facilities. The Government are not going to balance the books by 2015 as the Prime Minister promised. National debt as a percentage of GDP is not now forecast to start falling until 2017-18. It is important to remember that, as it breaks one of the Government’s own fiscal rules.

As this week’s labour market statistics show, halfway through a Parliament, Britain is still being scarred by rising unemployment, an issue raised in earlier debates by many hon. Members, who brought attention to what was happening in their constituencies in the real world.

Not only are more people unemployed than at the election, but the number is rising. Earlier, my hon. Friend the Member for Newcastle upon Tyne North referred to the rising numbers: 70,000 more people are on the dole now than last month; long-term unemployment has risen yet again; and, most damagingly of all, the next generation is paying the brutal price, with youth unemployment up yet again, by 20,000.

People are no longer giving the Chancellor the benefit of the doubt. I think I said that about this time during last year’s debate; I felt that at that stage the public were beginning to lose confidence in the Chancellor’s economic strategy. This week, we have to take note of what the International Monetary Fund’s chief economist said:

“In the face of very weak private demand, it may be time to consider adjusting the original fiscal consolidation plan”.

[Mr Stewart Jackson (Peterborough) (Con)]

I am following the hon. Lady’s speech with interest and read the new clause with greater interest. She really has not addressed the issue raised by the hon. Member for Dundee East (Stewart Hosie). The new clause represents a spending commitment. Given that she is not able to specify what “strong growth” means, how will she fill the fiscal gap? Will she increase another tax, and if so which one? Alternatively, which departmental budget would be cut to pay for the measure?

[Cathy Jamieson]

I thank the hon. Gentleman for his intervention. We argue that the new clause would be part of a package of measures. We have heard about other initiatives that could be brought forward, and it is important to recognise that others in industry and business are also saying that one way to stimulate the economy would be to introduce at least a temporary cut in VAT. There are serious questions to be asked about the other issues, but if we could get unanimity about this issue, it might be possible for the Government to consider it and bring forward further proposals.

In the Budget, the Government had the opportunity to change course, make the necessary changes and kick-start the economy. Sadly, however, more and more commentators are reflecting that all we got was more of the same from the downgraded Chancellor. As a result, the cost of living for people up and down the country is rising day by day. The economy is flatlining, inflation remains high and food bills are rising. Energy bills are soaring, thanks to the Government’s failure to break the stranglehold of the big six energy companies. The Office for Budget Responsibility’s most recent figures show that people will be worse off in 2015 than when the Government came to office.

The reality for people is that real wages are now £17,000 a year smaller than they were in 2010. To add to that hardship, any benefit that hard-working people might have received from the Government’s much trumpeted rise in the personal allowance has been uniformly swept aside by the raft of tax and benefit changes that the Government have made since 2010. Those changes mean that families will be an average of £891 worse off in the new financial year, according to the analysis of figures made by the independent Institute for Fiscal Studies—even more money out of the pockets of hard-working people up and down the country.

The truth is that even if those tax and benefit changes had never happened, any benefit from the rise of the personal allowance would have been wiped out by the Government’s 2011 VAT rise from 17.5% to 20% alone. Research from the TUC confirms that by the time of the next election, families of all incomes will lose more from the VAT rise than they will gain from the increase in the personal allowance and the changes to national insurance, with low-paid workers losing up to four times more per year from the Government’s increase in VAT than they will gain from the raising of the personal tax allowance to £10,000.

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[Neil Parish]

indicated assent.

[Mr Jackson]

rose—

[Cathy Jamieson]

I want to make a bit more progress. I come back to the point raised by the hon. Member for Tiverton and Honiton about times being hard and the idea that somehow the problem is to clear up the mess left behind, as he described it. People out there in the real world are getting tired of hearing that same old mantra. The Government have responsibility for what is happening now. They have to take responsibility for policy decisions taken in Budgets that impact on the lives of ordinary people.

I go back to the research from the TUC. Some Government Members may look sceptical about it, but I assure them that many ordinary people in my constituency and those of my hon. Friends recognise the value of the work that the TUC and trade unions are doing in standing up for those finding that their individual and collective incomes are being affected.

The TUC research considers the impact of direct and indirect tax changes over the Parliament. It shows that a household with an average weekly income of £195.92, the lowest income band for working people, will gain £1.09 a week—that figure is underlined, so I have not made an error—from the above-inflation rise in the personal allowance by 2015. However, and importantly, the same family will lose £4.26 a week through the increase in VAT, which went up in January 2011, leaving them with a total annual loss of £164.84 as a result of the Government’s tax policy.

Many on the Government Benches may say, “Well, that is not a huge amount.” I repeat what I have said in previous debates: it may not be a huge amount for someone with a decent job and income—I include all of us here in that—but it is a huge amount for those trying to have a reasonable standard of living and ensure that their families have food on the table and that their kids have clothes.

[Andrew Gwynne (Denton and Reddish) (Lab)]

rose—

[Mr Jackson]

rose—

[Cathy Jamieson]

I give way first to the hon. Gentleman and then to my hon. Friend.

[Mr Jackson]

The hon. Lady is being most generous in giving way. Surely it is churlish of her not to concede that most independent specialists, such as the Institute for Fiscal Studies, have said that as a result of the fiscal changes since 2010 the biggest impact has been felt among the richest 10% of earners in the country. Is it not fair to put that on the record, too?

[Cathy Jamieson]

I hope I am not being churlish in hoping that the hon. Gentleman will understand that most of those independent commentators also point to what is happening to those on the lowest incomes. Opposition Members feel strongly that those people are taking a disproportionate share. It is not a case of, “We’re all in it together.” When ordinary people see millionaires and those on the highest incomes getting a tax break or a tax cut, it seems unfair to them that their wages or incomes are hit hard by the Government’s policies.

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[Albert Owen]

I am grateful for that clarification. I recall that Labour Front Benchers said at the time that the proposal was specific to one thing, but this is a flexible measure. We can exempt certain goods from it. Yes, there are the European directives, but we could do this immediately and in doing so send out a positive message to the country and the business community and increase footfall in our shops and high streets.

The argument about reducing tax and increasing yields is perfectly legitimate. Some say that reducing corporation tax automatically boosts business, but it also results in a drop-off in the money that the Treasury takes. Nevertheless, it seems to be a favourite of the Conservatives, and I, too, support it. I support having a low-tax economy and reducing many of these taxes, but we should be consistent and do the same with VAT. The increase in it was supposed to raise several billions of pounds, but it has failed to do so because spending has fallen.

I support the proposal to reduce VAT. Action is need and needed now. The Chancellor could do it, and if he wanted to, he could do it straightaway. I accept that the poorest in the country, on the lowest wages, will benefit from the change to income tax thresholds, but they will lose out overall. The TUC is not alone in making this point. The Institute for Fiscal Studies has said that the combined tax increases, of which there have been several, both direct and indirect, will make the average family £900 worse off. If families are worse off in this country, spending is reduced and the economy is bound to contract. That is basic economics. We need to stimulate the economy, and one way of doing it correctly is to reduce VAT temporarily from 20% to 17.5%. Let us get the economy moving. The Chancellor has the power to do it, and he should support the new clause.

[Mr Stewart Jackson]

It is always a pleasure to follow the hon. Member for Ynys Môn (Albert Owen). I am not sure that it is necessarily a pleasure for the Whips, because the Committee will know that in the last Budget I was not exactly that supportive of my party on VAT, having opposed VAT on caravans and, by virtue of my being the Member of Parliament for Peterborough, on ecclesiastical buildings.

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[Sheila Gilmore]

Would the hon. Gentleman like to comment on the numerous observations and reports suggesting that, in fact, capital is available? Many businesses have capital available; the reason it is not being used to invest is that there is low demand in our economy.

[Mr Jackson]

The hon. Lady anticipates my next point. By any respectable indicators over the past few years, the cash reserves that British business has for investment are enormous. The issue is business confidence. To develop that point, parts of the economy are doing significantly better than others and have not been affected by this cyclical change, which has lasted since the onset of the Northern Rock crisis of 2007-08 and the wider banking crisis.

I am a Conservative, so of course I am in favour of tax cuts. Would that we were in a position to have a tax cut by virtue of the Opposition’s new clause 2, but let us make no bones about it: it is an unfunded tax cut—if it walks like a duck and swims like a duck, it is a duck. I always thought that Labour’s credo in recent times was not to support unfunded tax cuts. With all due respect to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who is a very competent, proficient performer at the Dispatch Box, she failed to answer the points raised by me and the hon. Member for Dundee East (Stewart Hosie) and say where the money would come from. We are talking about £100 billion of indicative funding, which has to be found from somewhere. It is all very well saying, “We’re going to have a progress report at the end of this Parliament to see how things are going,” but once we put in place that tax cut, we would cut off that income stream. We would then have to find other ways to fund core expenditure.

[Albert Owen]

I hear what the hon. Gentleman is saying, but he referred to a figure of £100 billion, which is the total VAT take. We will not lose all of it: there will be a 2.5% reduction.

[Albert Owen]

Yes, a 10% reduction. The hon. Gentleman is talking about losing that, but unemployment is going up—these are the factors—and we will be paying more out of the Treasury for those things. We are talking about stimulating the economy, which I understand is difficult to quantify, but it would be positive.

[Mr Jackson]

The hon. Gentleman might say that, but it is incumbent on Her Majesty’s loyal Opposition to specify the amounts and where the cuts would be made in other ways. It is not acceptable to dodge the issue, and that goes even for the simple question of what is “strong growth”. At what stage would that be measured? How would we quantify “strong growth”? It is rather mealy-mouthed.

Let us look at the wider context. Interest rates are historically low. Perhaps the hon. Gentleman is not old enough—or maybe he is—to know that in 1975 they were 27%, under a Labour Government. Inflation was substantially higher through most of the ’70s and ’80s. We now have big cash balances, lower interest rates, relatively low inflation, lots of money in the economy and quantitative easing, which has been in place for many years. Even if we accept the traditional Keynesian view—that just pumping money into the economy will deliver growth, jobs and prosperity, which seemed to inform the argument that the hon. Member for Kilmarnock and Loudoun made—we should accept that it has not worked so far through quantitative easing, with the balances that are available. The issue is business confidence.

In the wider context—wider even than that—between 2000 and 2010, public expenditure rose from roughly £450 billion to more than £700 billion. That is the context in which we should look at these fiscal changes. It is not as if we have starved the economy of money in the public sector. The difficulty for the hon. Member for Ynys Môn in arguing in defence of the Government at that time is that the economy was so unbalanced. It was focused disproportionately on the housing market, public expenditure and financial services. Part of our challenge as a Government is to try to rebalance the economy, so that it can make people prosperous and create jobs across wider economic activities, which is happening organically on its own.

Those on the Opposition Front Bench also fail to take into account the other, bigger policies that the Government have embarked on. I will not pretend that things such as the national insurance holidays or the regional growth fund have been an enormous success. I serve on the Public Accounts Committee and we have been critical of things that the Government have pursued in some areas. Nevertheless—the hon. Gentleman alluded to this—the Government are looking at tariffs for utility bills, the beer duty escalator and the fuel duty escalator. We are looking at substantial changes that will have a fiscal impact on welfare, through the universal credit and so on making work pay, rather than paying for idleness and allowing people’s talents to be wasted. We are also putting money into the mortgage market and assisting new house building. Some 42,000 of my constituents had a tax cut last week as a result of the massive fiscal changes that this Government have made, with 2,000 of my constituents paying no tax at all and 24 million people affected. It seems rather unfair not to take that on board.

I also alluded earlier to the progressive nature of our tax changes. Whatever we say about them, it cannot be argued that we have not looked at the top 5% or 10% of income earners in this country to ensure that they are paying a significantly higher share than others. They are the people who will specifically be more worse off than anyone else, whether the hon. Gentleman likes it or not.

[Mr Redwood]

It is unfair to say that VAT is a very regressive tax. If it were applied across everything, it would be, but because it does not apply to food and some other items that figure much more highly in low-income budgets, it is not nearly as regressive as has been suggested.

[Mr Jackson]

Exactly. We could argue at length about the progressiveness of various taxes—no doubt others would want to—but my right hon. Friend makes an astute point.

The final example is council tax. That depends on the local authority, but in general, most councils have frozen council tax. Therefore, the suite or portfolio of the Government’s fiscal changes that have helped working people is quite significant.

Let me say in finishing that we expect more from an Opposition two and a half years into a Parliament. We expect them to come up with policies that are credible. We expect them to move on from policies that just tick the box of opposition. No doubt the hon. Member for Kilmarnock and Loudoun, who is well connected in the Labour party, will have read the comments of Tony Blair, a three-time election winner, in the 100th anniversary edition of the New Statesman. He cautions the Labour party not to fall back into the comfort zone, not to be a repository of anger, but to be an outward-looking, forward-looking progressive party. I am sure that the Labour Whip on the Front Bench, the hon. Member for Sedgefield (Phil Wilson), would agree with his predecessor and say that that is sage and intelligent advice. It is so because we expect proper, costed policies. What we have had today is an unfunded tax cut that does not help the people I believe the Labour party genuinely wants to assist to have a better life. I would caution the hon. Member for Kilmarnock and Loudoun to come back with more coherent, more intelligent and more credible policies. That is why I will not support new clause 2.

[Alex Cunningham]

Some Members have chosen to talk about billions of pounds. I will speak about the odd pound and the odd penny, because that is what makes the difference to many of the people I represent.

The cost of living is one of the defining issues of this Parliament not only because of what the Government are doing but because of what they are not doing. Following the announcement yesterday of a huge increase in unemployment—12,000 in the north-east of England—in the last hour, we have learnt that another 160 jobs are going at SABIC, a pharmaceuticals company on Teesside. That is not good news.

The Chancellor’s VAT hike has been shown to be a mistake and it is hitting the vulnerable and those on the lower end of the income scale the hardest. Yes, one of the millionaires who uses his £100,000 tax cut under this Government will pay more VAT than the vast majority of other people when he buys himself a luxury car, but that will not make the difference to whether or not he can buy an extra loaf of bread or a pound of mince for his family’s evening meal. A cut in VAT of 2.5% may just buy some extra peanuts when the banker buys his champagne to celebrate his latest million-pound bonus, but it is the people earning peanuts for working hard to support their families who can put the extra pound or two from a cut to good use.

The previous Labour Government showed that that works when they temporarily reduced VAT to 15%. The reduced tax on sales provided an effective stimulus to the economy. Likewise, a VAT hike was always going to suppress consumption, and hit ordinary families in places such as my Stockton North constituency hard.