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I hope that the problem can be tackled more successfully this year, although, as we have argued for a number of years, it is hard to understand how meaningful reform
of the CSA, so long as it continues to be structured as the CSA, will lead to the solution that we all want. Would it not be better to put it properly within the Inland Revenue system, rather than continuing with a free-standing agency that no amount of tampering and tinkering can improve? Perhaps the Minister could indicate in his reply just where the Government’s thinking is up to, because even the Government have begun to allude to the fact that they might want to scrap the CSA completely. I do not know what the detail of the proposal in the Queen’s Speech will prove to be.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): The Liberal Democrats have suggested placing responsibility for the collection of child maintenance with the Inland Revenue on many occasions, but is not the problem that the Inland Revenue, as currently structured with the pay-as-you-earn system, does not have a way to attribute individual payments in-year to an individual and can reconcile those payments only at the end of the financial year?
Mr. Kennedy: The hon. Gentleman is quite right. That is one of the first things that we have run into in developing our policy over the years. However, two layman judgments have always weighed on my mind when considering the problem. First, for God’s sake, nothing could be worse than what we have at the moment, as we all know from our constituency surgery experience. Secondly, with computerisation and integration available, although there are problems, surely it cannot be beyond the wit of civil servants and Ministers to find a way to reconcile such things, so that payments can be worked out properly later. Perhaps that is a triumph of hope over experience—perhaps I am the eternal optimist in such things—but we can do an awful lot better than we have been doing over the past few years.
I want to make a further point about the argument that the Chancellor was addressing in his remarks on the purpose and the ends of fair taxation and expenditure. I do not think that in our political debate we should be embarrassed into shying away from the principle, as I see it, that a tax system should be progressive and that we should not resile from redistribution as a genuine and authentic aim of such a tax system—provided, of course, that we are in favour of a society in which those who are able to be entrepreneurial, to take risks and to generate considerable wealth are not held back and the state does not forget through the tax system those who do not find themselves in that position.
My final point relates simply to pensions, which have been referred to during the debate, and wider environmental and energy matters, about which the Chancellor spoke. There is no doubt in my mind that we must contrast the way in which the Government have gone about pension reform—by setting up something under Adair Turner that carried conviction and credibility and that helped to begin to sow the seeds of all-party consensus that probably even a couple of years ago would have seemed like a mission impossible—with the way in which our future energy needs, particularly the civil nuclear role, has been handled, with no proper independent evaluation and no sense of confidence in how the issue is to be taken
forward. In fact, in a rather unexpected speech to the CBI annual conference dinner, the Prime Minister more or less said that he had made up his mind and that that was essentially it.
I do not know how, within one Government, there can be such a good example of a complex policy that goes beyond party politics being carried forward sensibly, while an issue that also fits all those difficulties is bounced in a way that ends up satisfying no one. That is why, with the likely transition at the top of the Government when this pause in normal political proceedings ends, I hope that we shall revisit some of the big issues and opportunities that, with the underpinning of a fairly benign economy—under this Government or a successor Government—we can do so much more about in achieving the socially just society to which we all aspire.
6.55 pm
Helen Goodman (Bishop Auckland) (Lab): I am most grateful for this opportunity to contribute to the Queen’s Speech debate. May I say what a pleasure it is to follow the right hon. Member for Ross, Skye and Lochaber (Mr. Kennedy), who gave a wide-ranging speech in his usual witty and charming manner? I will concentrate much more narrowly on tackling climate change while maintaining our competitiveness. Those two things are often presented as conflicting and contradictory, but I hope to show that we can achieve both.
Something that astonished me about the Opposition amendment was the statement that they
“regret the absence of strong and binding measures to tackle climate change and environmental degradation”.
It seems to me that arguably one of the most important measures in the Gracious Speech is the climate change Bill. Nothing could contrast more starkly than the weighty Stern report as the fashion-statement approach to environmental issues displayed by Opposition Members. The report is obviously right to begin with a statement of the ethical and scientific basis of the problems, but no one has really said such things more clearly or more precisely than John Locke in 1690:
“Each man is entitled to the fruits of his labour, as long as as much and as good is left for the next.”
On science, the Stern report has made it very clear that we are now up against an exceptionally tight timetable. We have only 10 to 15 years to stabilise and reduce emissions. That is particularly important in my constituency. At the rural end of my constituency in Upper Teesdale, unique biodiversity exists that has survived from the last ice age. Plants such as the spring gentian only grow in the north Pennines area of outstanding natural beauty. Those plants and that biodiversity will be completely destroyed by global warming. It is, of course, worth noting that while humans might have strategies for mitigation and adaptation, animals cannot be expected to have strategies for adaptation.
On the vexed issue of targets, which have been much discussed, it is quite clear that annual targets to reduce emissions are not practical. I understand that five-year targets have been proposed because they tie in very neatly with the Kyoto machinery, but we have now taken to holding four-year Parliaments, so it seems to
me that, to achieve proper accountability, we need to have three to four-year targets for our climate change objectives.
Those of us who are concerned about the environment are frequently portrayed as romantic impossibilists, but Stern has shown that there is an economic case for action. At the other end of my constituency in Bishop Auckland, we have a manufacturing base that is already changing shape and showing how a new green model for the economy can operate. We have a monthly farmers’ market in Barnard Castle, where people can buy and eat local and seasonal food without the burden of air miles. We have the Farmway farmers’ co-operative, which is the first link in the supply chain for biofuels that goes through to Teesside. The Glaxo plant, which is the most energy efficient one in the world, has two windmills to supply its electricity. CAA Roofing has developed a new solar wall system to trap the sun’s heat for buildings. Teescraft Engineering is considering constructing wind turbines. Thorn Lighting has just decided to build a completely new plant. It has a research and development programme with Durham university for low organic lighting. That will involve the biggest change in the way that we light our houses since the invention of the light bulb. All those examples show that greening the economy can create new jobs.
The Government’s policy of supporting science and encouraging links between industry and academia is absolutely vital. The Chancellor’s announcement of the energy technologies institute is one of the most forward-looking policies that we could have. We need to do more to simplify planning and building regulations, to reform the tax system and to provide one-stop advice. But the examples demonstrate that a cross-government approach is vital to ensuring that objectives lead to action.
When we look across the board at the competitiveness of the economy, we need to consider those sectors with high energy use where the picture is obviously trickier. There are two examples in my constituency: a glass recycling plant, Potters-Ballotini, and Wienerberger’s Eldon brickworks. Both have had serious problems in the past two years because of high energy prices. In fact, both have had to close furnaces for several months at a time. Excellent chapters in the Stern report look at how we should address the needs of heavy industry. Table 11A is quite compendious and sets out statistics for UK production sectors in 123 different areas and shows that glass and bricks are 10 times more carbon intensive than the financial sector. However, I do not take the lesson from that that everybody can or should become a banker.
The position of heavily energy intensive industries is a clear demonstration of the need for an internationally co-ordinated approach to climate change. There will be no environmental benefit if relatively efficient UK plant moves overseas where environmental standards are lower and from which transport costs are high. The Stern report suggests international trading agreements by sector, and I agree. Obviously, we do not want to impede major technological progress such as that by Thorn Lighting that I described earlier, but exporting all our heavy industry is unlikely to be the best environmental solution.
Despite the 574 pages of the Stern report, there are further pieces of analysis that it would be helpful for us to have. The first is a comparison across the countries
of the Organisation for Economic Co-operation and Development of carbon intensity disaggregated by sector. Only with that can we set demanding and realistic targets. At the moment, the UK scores well overall, but that is because of the big contribution made by the City of London. However, we should not use that to have, for example, a relatively inefficient household sector.
Mr. Newmark: I support the hon. Lady’s point that there should be target, but does she not believe that there should be annual targets for CO2 emissions for which the Government are accountable?
Helen Goodman: The debate about annual targets has been fully aired and the argument against them is that there would be too many blips and ups and downs. The weather could have an impact. That is why I would like targets to be set on a three to four-year basis.
Analysis of the impact on the exchange rate would also be helpful. When we got North sea oil, we thought that that was tremendous, but some problems were created because the exchange rate shot up. There is a risk that the exchange rate could also shoot up because this country is relatively carbon efficient.
One interesting idea that is being floated in Europe relates to a proposal on how to deal with international free-riders. There must be real incentives at an international level for countries to co-operate. It is worth our while considering introducing, or threatening to introduce, penalties on those who refuse to join proper carbon trading schemes. In effect, the proposal is for an extension of the generalised system of preferences that ties trade preferences to standards for labour and human rights.
We must face the fact that, whatever ideological or sentimental attachments people have to the current regimes, we have not so far been successful in getting all the large emitters to co-operate responsibly at the international level. Now we are on a much tighter timetable than we were previously. That also highlights the need for the international institutional machinery that tackles the environment to have the same status as the World Trade Organisation.
The second policy instrument that is vital for heavy industry and our overall success in meeting our climate change objectives is a proper costing of transport—aviation, marine and freight. We must include the external costs of transport, and this is not just about kiwi fruit. Such a costing will also affect the relative competitiveness of heavy industry across the world and it will change the current bias against local production.
The aspect of transport that is most discussed at the moment is aviation and the phenomenon of cheap flights. Those of us who argue that that should be tackled are often criticised as if we were saying that people on low incomes should not have proper summer holidays. Of course, that is not true at all. We need to knock that myth on the head now. Last year, 10 per cent. of flights were taken by people in the bottom 25 per cent. of the income distribution table, but the top 25 per cent. of the population took, on average, six return flights a year. That is completely unsustainable.
We cannot carry on with a situation in which people begin to get the idea that it is their right to have six return flights a year.
I want, however, to end on a more positive note. Putting a proper price on carbon will have similar effect on the economy to the significant oil price rises of the 1970s and 1980s.
Kelvin Hopkins (Luton, North) (Lab): My hon. Friend is making a very fine speech; I agree with what she says. Does she accept that massive investment in rail freight would make a serious difference given that rail freight produces one twelfth of the emissions of road freight?
Helen Goodman: What my hon. Friend says makes complete sense. We need to reinvest in public transport, which is why the Bill mentioned in the Gracious Speech that will extend the rights of old age pensioners to free bus travel is also a helpful contribution.
As I was saying, we need to put a proper price on carbon, and the effect will be similar to the oil prices hikes of the 1970s and 1980s. At first, when they occurred, everyone felt that they would be a complete disaster. However, in the end, the western economies benefited significantly and became far more efficient.
In 1990, I was sent by what is now the Department for International Development to Prague to advise the transitional Government in Czechoslovakia on its energy crisis. It was facing a situation rather like the one in Ukraine last year. I found an economy that had been protected from the real costs of energy. It was hopelessly sluggish and old fashioned. Forests were dying because of acid rain and every building that one went into—whether a private home or an office—was completely stifling. There were no thermostats, so one could not switch the heating off. Industry also used out-of-date stock. By introducing proper energy pricing, all that has changed. The Czech and Slovak Republics now have dynamic economies. They are growing modern democracies and full participants in the European Union.
Being green is often a synonym for being naive and perhaps rather foolish. However, I hope that, with the Government’s programme of action set out in this Queen’s Speech, being green will, in fact, be about the rejuvenation of the British economy.
7.10 pm
Mr. David Gauke (South-West Hertfordshire) (Con): It is a great pleasure to have an opportunity to speak in today’s debate. In particular, I would like to address the rather topical issue of our taxation system and the relationship it has with productivity. I say that it is topical in part because of the report produced by the CBI this morning. The survey looked at business’s attitude to taxation in this country. I am afraid that the picture is not a happy one. According to the survey, 70 per cent. of senior business men who responded believe that the UK is a poorer international business location than it was in 2001. Some 75 per cent. say that the corporate tax regime is worse than it was in 2001 and 19 per cent. of UK companies are considering moving their headquarters abroad, as my hon. Friend the Member for Sevenoaks (Mr. Fallon) mentioned earlier today.
In 2000, we had the 10th highest corporation tax rate among the Organisation for Economic Co-operation and Development countries. It is now the 18th highest. However, rates—particularly corporation tax rates—are not the be all and end all of taxation. It is the habit of the Government, and of the Chancellor in particular, to quote the fact that corporation tax rates have fallen since 1997. That ignores two points. According to a recent World Bank report corporation tax constitutes, on average, only 36 per cent. of the total amount paid by businesses. These things have to be looked at relatively. There was a time, say in 1997, when our business taxation rates were lower than the OECD average, but that is no longer the case, because our competitors are cutting taxes whereas we are going in the other direction. That is why we are rapidly approaching the point where the tax burden in this country will be greater than that in Germany. That puts us at a competitive disadvantage, at least compared with where we were only a few years ago.
As I mentioned earlier, rates are only one aspect of taxation; there is also tax complexity. The Government have a poor record in that area and there is nothing in the Queen’s Speech as such that will address that. We wait to see whether the Finance Bill in this parliamentary Session will attempt to address it.
Returning to the CBI survey, 95 per cent. of business people say that the tax system should be simplified. That hardly comes as a surprise. However, the external experts have been damning when it comes to the position that we face in this country. KPMG said:
“The general trend for the UK’s tax system in recent years has been towards more complexity and less certainty, which is gradually making the UK a less competitive location for industry”.
The British Chambers of Commerce said:
“It is clear that the system has become progressively more complex over a number of years, driven by the relentless increase in tax legislation...The complexity of the tax system has a real impact on UK firms’ ability to compete in an increasingly competitive market”.
The Chartered Institute of Taxation follows in a similar vein:
“Over the past several years there has been a series of waves of complex ill thought out tax legislation that purports to counteract tax avoidance but, in practice, goes much further than that...Certainly the UK’s competitive position has been undermined.”
It is always difficult to quantify complexity, but there are one or two rough and ready measures that are worth looking at. One is the length of handbooks. In 1997, Tolley’s Yellow Tax Handbook of the British tax code was 4,555 pages long; it is now 9,841. In a report published a week or so ago, the World Bank noticed that, among the major economies, only India has a longer tax code than the UK.
Another rough and ready measure is Finance Acts. I say this with some feeling having served on the Committee on the previous Finance Bill —[Hon. Members: “Hear, hear.”] I am grateful for those comments, which I hope will be recorded in Hansard. One hears stories from the old hands about how they stayed up all night considering Finance Bills in the 1980s. Those Finance Bills were only 157 pages long.
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