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Mr. Devine: As a result of Farepak’s collapse, hundreds of thousands of hard-working families have, in effect, seen Christmas cancelled. Is the hon. Gentleman aware that the Labour Government of 1948 introduced the Companies Bill, section 332 of which would have protected those families? However, the Act of 1985, which he is making light comment on, destroyed the right of those people to get their money back.
Mr. Gauke: First, I think that the hon. Gentleman is referring to the Companies Act 1985. I am referring to Finance Acts. Secondly, the sympathy of us all goes out to those who have suffered under Farepak—I am sure that he would agree that this is not a party political point—but the Government have been in place for nine years, so if there is a fault with the legislation, which I am not necessarily saying that there is, those remarks should be directed to his own Front-Bench team. I was trying to make the point that Finance Bills have grown in length substantially. Between 2000 and 2005, they were 481 pages long.
The third assessment of complexity involves looking at the World Economic Forum, which produces a rating on these matters. Looking at the UK’s global competitiveness on tax complexity, in 2004-05—not that long ago—it was 48th, but within a year it had moved to 67th. Again, there is an element of too much complexity. It is worth noting that the survey undertaken by the tax reform commission, which was commissioned by my hon. Friend the shadow Chancellor, showed that 60 per cent. of businesses are increasing spending on tax planning at the moment. Some 78 per cent. said that the level of tax complexity has increased in the past five years.
There is a further issue with complexity. There are obviously the compliance costs and so on. The major concern is unpredictability and instability. When we look at the developing world and think about how it can develop further, most people consider issues such as property rights, certainty within the taxation system and so on. We do not face anything like the problems that exist in some developing world countries, but the economic point remains the same. It is bad for an economy to have an arbitrary, unpredictable taxation system. Business needs confidence to invest and the taxation system can undermine that confidence.
Various elements make up the concerns with regard to unpredictability. First, there is the extent of the changes, to which I referred earlier. When we have large Finance Bills and there are substantial changes to taxation, year on year, that causes concern. There is also concern about the sheer level of complexity. It is difficult for businesses, even when advised by highly skilled advisers, to know what their tax liabilities are.
There is also a concern about extra powers for Her Majesty’s Revenue and Customs. I am thinking in particular of a recent consultation document about additional powers. PricewaterhouseCoopers, for example, has made representations to the Treasury to say that it recognises the advantages of harmonising and modernising the powers of HMRC. However, it says that while harmonisation and modernisation are one thing,
“taking the most extreme of the powers of the two former Departments”—
by which it means the Inland Revenue and Customs and Excise—
“to create a set of powers that are far more extensive than either of the predecessor sets of powers, is something quite different and which needs to be properly justified”.
There is no doubt from the tone of the submission made by PWC that it is sceptical about that. There is also a concern—again, I can see it in documentation from PWC—about too much discretion for HMRC. It raises the concern that the Revenue was often able to manage legislation by means of such devices as frequently asked questions. That creates difficulty for business. There is no doubt that there is increasing evidence that the relationship between businesses and HMRC is deteriorating.
I have no doubt that tax evasion must be tackled—the Government are right to try to do so—but the balance must be right. I am worried that the increased complexity that is being weighed on business is having a serious impact on it, partly due to a lack of certainty. Support for the view that businesses lack certainty in the tax system comes from today’s CBI survey, which shows that 23 per cent. of the business people who responded said that the way in which their company’s tax returns had been treated had declined since the creation of HMRC. Something is going wrong with the relationship between businesses and HMRC when that is happening. The Queen’s Speech contained no measures to address such concerns.
It is by no means inevitable that tax complexity should be weighed on tax complexity, although that appears to be the direction in which we are going. We should consider examples from overseas, such as from the Republic of Ireland, Australia, New Zealand and the Netherlands, where there has been simplification. Those countries have looked at abolishing reliefs and lowering the actual rate.
The Government could have considered procedural points and set out their conclusions in the Queen’s Speech. The tax reform commission that my party set up examined ways in which there could be pre-Budget consultation on tax measures. It also considered the establishment of an office of tax simplification and the possibility of Finance Bills being examined by a Joint Committee to make use of some of the expertise of the House of Lords. I do not particularly advocate the last proposal because it would give rise to constitutional concerns, but we should use greater expertise to try to tackle the situation, because complexity and uncertainty are creating a great deal of worries.
I have mentioned before, including during the consideration of last Session’s Finance Bill, the impact on our tax law of decisions taken by the European Union and, specifically, the judgments of the European Court of Justice. Last week, the ECJ pulled back on excise duties. There was a great deal of publicity about the rate of excise duty that should be charged when a person from the UK ordered alcohol or cigarettes from Latvia using the internet. Against the advice of the advocates-general, the ECJ concluded that the UK rate should apply in that case. Despite the easy temptation to make remarks about cheap booze in the run-up to Christmas, I was greatly relieved that such a judgment was reached.
Concerns have arisen about occasions on which the ECJ has waded into areas in such a way as to attack the whole integrity of the UK taxation system, especially with regard to the way in which corporation tax group relief has worked. In many respects, the ECJ is more a political body than a judicial body. Many of its judgments seem to reflect its ultimate political objective of ever closer union, as is seen from its decisions on taxation and other matters. The ECJ is also political in that it seems to have an awareness of the political pressures in member states and thus treads carefully at times—perhaps last week’s decision on excise duties was an example of that.
I am worried that there is a two-stage process. The ECJ makes it difficult for any member state to raise revenue in the way in which it would like. It is not a huge jump to go from that on to the next step of suggesting that that could be dealt with through greater harmonisation and a common tax base, as I believe Mr. László Kovács will propose at a meeting of Finance Ministers tomorrow. I am worried that the integrity of the system is being attacked at the first level and that the solution produced at the second level is essentially one of European Union tax law. That would be wrong for a number of reasons. It would further weaken any competitive advantage that we have in the UK and it would take taxation out of the democratic forum in such a way that our electorate would no longer have a say.
I know that the Financial Secretary has heard me make similar speeches before, but I say again that I am worried that the ECJ is, to some extent, a political body so that I can increase political awareness of my concerns. I hope that the House will send out the message that it does not like our taxation system being attacked by judgments of the European Court of Justice, and I am grateful to have had the opportunity to make that point again.
Productivity is a hugely important issue in this country. We need to address the situation because recent years’ productivity growth figures have not been good. The taxation system is one element of the problem, because the competitive advantages that this country built up throughout the 1980s and into the 1990s have gradually been diminished. There is no doubt that economic policies have an effect for a long time after they have been implemented. When the Chancellor was boasting about unemployment figures to my hon. Friend the Member for Wellingborough (Mr. Bone), I was struck that he resorted to saying that his achievements on unemployment tended to have taken place between May and October 1997. I cannot help thinking that the previous Government might have had something to do with that success, although I hope that I am not making a claim that is too hard to back up.
Many economic decisions have long-lasting effects, although they are not always immediate. Long-term harm is being done to our country through our business tax system and we are no longer as competitive as we were. If we do not address the situation in this Session or soon, we will face problems.
7.27 pm
Mr. Ian Austin (Dudley, North) (Lab):
It is a great pleasure to speak in the debate and a particular pleasure to follow the speech made by the hon. Member for
South-West Hertfordshire (Mr. Gauke). We heard, as usual, a thoughtful and detailed contribution from someone for whom I have developed a great deal of respect since we were elected last year. I want to focus on three matters: the second paragraph of the Queen’s Speech, which paid tribute to the stability that the Government’s management of the economy has delivered; a couple of the Bills cited in the Queen’s Speech; and several of the points made by the shadow Chancellor and his colleagues.
First, on the stability of the economy, the macro-economic framework introduced by the Government has delivered growth of 26 per cent. in the nine years since 1997, compared with 15 per cent. in the nine years before 1997. Historically low mortgage rates have cut costs for the average homeowner by about £4,000 a year. Employment is at a record rate of 29 million, which is up 2.5 million since 1997. More people in my constituency are in work than at any point in our history.
Despite those dramatic improvements, one can still see the legacy of the industrial and economic restructuring of the early 1980s, when the industries on which the black country’s prosperity had been based experienced decline. When I left school in the early 1980s, Dudley had high unemployment and some 3,300 young people had been out of work for more than six months. Today, the equivalent figure is just a few hundred, although I want all young people to be in work or training. More than 1,000 youngsters are better off through the new deal.
As we consider the next stage of our area’s economic development, I am pleased that the Queen’s Speech showed that we will maintain our focus on training, because skills are a crucial component of a dynamic economy. We must ensure that young people have the skills that they and the labour market need; that is particularly important for an area such as Dudley because it is the only way that those without work will be able to share in this country’s prosperity. It is also, crucially, the only way my area will be able to attract the high-wage, high-skill jobs of the future.
Secondly, having been one of those MPs who called on the Government to introduce a climate change Bill in the Queen’s Speech, I am pleased that such a Bill was announced. Climate change is not only the biggest long-term threat that we face, but a great economic opportunity for areas such as mine. We need to look at how we can help manufacturers of the new green technologies—solar panels, energy-efficient boilers and wind turbines—to locate in former manufacturing areas such as the one that I represent.
Thirdly, I want to welcome the proposals in the Queen’s Speech to enable more people to move off benefit and give them the support that they need to return to work. Last week, the Opposition discussed how to deal with the problem of the poorest 10 per cent. in society. It was the latest in a long series of eye-catching initiatives to show how much the Opposition have changed. I disagree with those who say that the Opposition do not believe in anything or that they have no policies. On the contrary, it is precisely because of what they believe, because of their values, that their policies cannot work.
Let us take last week’s announcement. In his very first interview following the announcement the hon. Member for Bury St. Edmunds (Mr. Ruffley), the spokesman on welfare reform, said that the solution was not “jacking up benefits” but
“more active civil citizenship and social enterprise.”
I am as big a supporter of the voluntary sector and the social enterprise movement as anyone, and I recognise the much bigger role that they can play alongside an empowering and enabling public sector. But earlier today the shadow Chancellor attacked the Government’s record on child poverty. We have tough targets to cut child poverty, but he says that they are just an aspiration, and the Opposition fought us every step of the way on those targets. They say that tax credits are a waste of money and that child support should be cut. That is because, whatever they say about the responsibility that we all have to act together collectively as a community, they will not, as a matter of ideology, do what is necessary to deliver social justice and open up opportunity to all. That is why they say that they want to tackle poverty but condemn the increases in public spending needed to tackle it as “fiscal irresponsibility”.
As we heard earlier, the Conservatives have announced the so-called proceeds of growth rule, which, whatever they say, commits them to cutting public spending year in, year out. The right hon. Member for Wokingham (Mr. Redwood) complained earlier that we had not spent enough on transport infrastructure, but the Leader of the Opposition himself admitted that their policy is to spend less. He said:
“As that money comes in let’s share that between additional public spending and reductions in taxes. That is a dramatic difference. It would be dramatically different after five years of a Conservative Government.”
If that rule were in place now, spending would be £17 billion lower than the Government’s plans set out in the Queen’s Speech, and lower still in future.
The Conservatives’ tax report, which was also mentioned earlier, was commissioned by the shadow Chancellor and described by him as the framework for policy. Its authors went further and called for £21 billion of unfunded tax cuts. Those, if implemented, would undermine the stability of the economy mentioned in the Queen’s Speech and repeat the mistakes of the past. It is impossible to argue that savings could be made on that scale without hitting hard-working low and middle income families by cutting deep into tax credits and the new deal. Perhaps that is why the Leader of the Opposition said that he wanted to replace public services for the poor with
“a profound increase in voluntary and community support.”
It is the same old ideology of a small state and spending cuts, leaving the vulnerable relying on charity.
Andrew Selous (South-West Bedfordshire) (Con): Does the hon. Gentleman agree that to tackle fully poverty it is necessary to work seriously against the causes of poverty in addition to providing the support of the benefits system?
Mr. Austin: Of course it is important to work against the causes of poverty and to invest in skills and education. That is what this Government are trying to do, and that is what would be damaged by the Opposition’s plans to cut £17 billion, £21 billion or whatever it is from public spending.
Mr. Devine: When the Conservative party was in power in my constituency I worked in a primary care psychiatric unit. Unemployment was over 20 per cent.—that was real poverty. Working in the unit, I watched GPs prescribing anti-depressants such as Valium to people. If they could have prescribed a job, those people would not have been anywhere near the health service.
Mr. Austin: My hon. Friend gives an eloquent description of the poverty that his constituents and those in the rest of the country had to endure during 18 years of Conservative Government, which, whatever they say about poverty today, is never condemned by Opposition Members.
Michael Gove: Will the hon. Gentleman give way?
The Queen’s Speech and the response of the hon. Member for Tatton (Mr. Osborne) have made it clear that the dividing line at the next election will be between progressives on this side of the House, who believe in rights and responsibilities and in strong communities supported by an enabling Government, with a strengthened voluntary sector to guarantee fairness and justice to all, and the unchanged Conservatives, who do not accept that there is collective responsibility and would cut spending, leaving the vulnerable with less support and charities stepping in to fill the gap.
The Conservatives will not commit themselves to increasing tax credits to help the low and middle income majority in Britain. Instead the shadow Chancellor’s top priority is abolishing stamp duty on share deals and handing out a £1 billion bung for those hard-pressed merchant bankers struggling to get by.
Just at the point at which boosting skills has become more important than ever, the Conservatives want to abolish the new deal. Last week, they offered warm words to people with personal debt problems. The right hon. Member for Wokingham did not want earlier to discuss the work of the economic competitiveness policy group, which he chairs, but my understanding is that is has published plans to abolish consumer protection for mortgages, pensions, insurance and credit cards.
Mr. Austin: I give way to my hon. Friend.
I do not know whether my hon. Friend saw that ITN today showed correspondence from Farepak to Halifax Bank of Scotland before the share price collapsed. Farepak asked HBOS to ring-fence the money involved in this unregulated field. Sadly, HBOS wrote back saying that they would not ring-fence the money. Although HBOS may not have a legal responsibility to the individuals who have lost money, it has two days before the fund closes to shoulder its moral responsibility. Surely that is a good example of an industry in which we need more regulation. Does my hon. Friend agree?
Mr. Deputy Speaker: Order. We are getting into too much detail on the Farepak matter. However important it is, it is, within the terms of the amendment, obtruding a little too far to be acceptable.
Mr. Austin: I shall be brief in my response. I pay tribute to my hon. Friend for all the work that he and other Members have done on Farepak. What the whole debacle shows is that the poorest people in our society need more protection, not less.
Time and again, as in the amendment on the Order Paper, the Opposition use moderate, compassionate language to mask traditional Tory positions. They said that the test of their economic and social policy is
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