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Structural Budget Deficit

10. Mr. Robert Syms (Poole) (Con): What estimate he has made of the UK’s structural budget deficit in comparison with other western European economies. [181419]

The Chief Secretary to the Treasury (Andy Burnham): Cyclically adjusted net borrowing in the UK has averaged 1 per cent. of GDP over the economic cycle that began in 1997. Over the same period, the structural deficit has averaged 2.1 per cent. in the euro area, 3 per cent. in France, 2.3 per cent. in Germany and 2.8 per cent. in Italy.

Mr. Syms: Is it not the case that our structural deficit is now higher than that of many countries in the euro zone, and is it not true that the Government have squandered tax revenue in years of relatively high growth and now have no choice but to raise taxation to meet the golden rule?

Andy Burnham: As the figures that I read out indicated, that is not the case. Net debt in this country, at 37.2 per cent. of GDP, is lower than that of France, Germany, the US and all the G7 except Canada. That is the result of a strong fiscal framework and strict fiscal rules that the Government have applied in the past 10 years. We will continue to borrow only to invest, enabling the renewal of our critical national infrastructure—something that the hon. Gentleman’s Government signally failed to do.


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Topical Questions

T1. [181431] Ann Winterton (Congleton) (Con): If he will make a statement on his departmental responsibilities.

The Chancellor of the Exchequer (Mr. Alistair Darling): As I said earlier this month, the core purpose of the Treasury is to ensure the stability of the economy, promote growth and manage the public services and finances.

Ann Winterton: When the fuel escalator was introduced, the oil price was low—the exact opposite of what it is now. The escalator is adding huge, increased costs to British business and industry, thereby endangering their competitiveness while fuelling the flames of inflation. Will the Chancellor consider suspending the escalator?

Mr. Darling: I keep all taxes under review. Generally, our economy has remained very competitive. British industry has done very well; indeed, as yesterday’s figures showing continuing growth of gross domestic product confirm, the transport sector remains healthy. However, as my predecessor said, we need to ensure that we maintain the appropriate level of taxation on fuel.

It is difficult to make like-for-like comparisons with other countries around Europe, but I think that the level of taxation at the moment is right. We will do everything that we can to help resolve the difficulties that we have with high oil prices. It is particularly important that oil producers recognise that they have an interest in making sure that there are adequate supplies of oil. That, of course, is one of the things determining oil prices at present.

T2. [181432] Mr. Edward Leigh (Gainsborough) (Con): I have asked the Comptroller and Auditor General to launch an inquiry into the costs incurred in rescuing Northern Rock, and he has agreed to do so. However, will the Chancellor tell the House what have been the costs incurred to date in issuing guarantees and indemnifying loans made by the Bank of England to Northern Rock, including professional advisers’ fees incurred by the Treasury?

Mr. Darling: The fees of Goldman Sachs will be met by Northern Rock. As I said to the House earlier this week, we have made guarantees but they have not been called, so there has not been a cost to the taxpayer.

T3. [181433] Phil Wilson (Sedgefield) (Lab): In the past few years, Trimdon 2000, a community group in my constituency, has received a grant of about £79,000 from the Northern Rock Foundation. Hundreds of similar community groups have received similar donations from that foundation. During his discussions on the future of Northern Rock, will my right hon. Friend ensure that the future of the foundation is secured?

Mr. Darling: As I have said on a number of occasions, I am very aware of the importance of the Northern Rock Foundation in the north-east. It depended on a significant income stream coming from Northern Rock in conditions that no longer exist. All of us, including
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my hon. Friend and his colleagues who represent north-eastern constituencies, would like to find a solution that helps the foundation; I know that that is also in the minds of those who have expressed interest in investing in Northern Rock. Trying to do something about it will require an effort on the part of us all, but I am very aware of the points that my hon. Friend has made.

Mr. George Osborne (Tatton) (Con): At this time of economic uncertainty, people are looking to the central banks and their monetary policies, yet in Britain we still do not know who will be running the central bank come the summer. What exactly is the reason why the Prime Minister and the Chancellor are delaying the decision on the reappointment of Mervyn King?

Mr. Darling: I have dealt with this issue on many occasions. As I have said before, I will make an announcement—actually, Her Majesty the Queen will do so, as that is how such an appointment is announced—and it will be made at the appropriate time.

Mr. Osborne: I am sure that Her Majesty will take the advice of the Chancellor and the Prime Minister when she makes her announcement. When Mervyn King was first appointed, that announcement was made in November for an appointment in June. At the beginning of this month, the Chancellor said at a joint press conference with the Prime Minister that he would make an announcement in the next few weeks; well, it has been a few weeks. What exactly is the reason for this continued uncertainty in the markets? Why cannot he simply say that he is reappointing Mervyn King? Let me put it another way. Is he looking at any other candidates for the job?

Mr. Darling: As I have said to the hon. Gentleman and to the House on many occasions, the appointment will be made at the appropriate time; that remains the case.

T4. [181434] Lynda Waltho (Stourbridge) (Lab): Will my right hon. Friend consider the views of the Federation of Master Builders and those of 58 MPs who have so far signed early-day motion 669, calling for a reduction in VAT from 17.5 per cent. to 5 per cent. on repairs to and maintenance of existing buildings? Such a move would bring far more empty homes on to the market, assist home owners in making their homes energy efficient, and, importantly, assist groups such as the West Midlands Historic Buildings Trust to maintain heritage buildings such as Lye and Wollescote chapel in my constituency.

The Financial Secretary to the Treasury (Jane Kennedy): I congratulate my hon. Friend on the persistence with which she is pursuing this subject. I can assure her that I have studied the terms of early-day motion 669. Alongside the zero VAT rate for the construction of certain new residential and charitable buildings, we have applied a 5 per cent. reduced rate for certain supplies related to housing. However, the problem is that we cannot implement the early-day motion proposal under the current European Union rules because there is no vires in EU law to allow any new reduced rate for repair and improvement work on non-residential buildings. I assure her that we keep the situation under review and seek to assist whenever it is possible to do so.


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T5. [181435] Anne Snelgrove (South Swindon) (Lab): Some 9,400 families in my constituency receive tax credits, a minority of whom experience great difficulty with the system. What changes are my right hon. Friend’s Department making to help those families and my hard-pressed caseworker, Julie?

Jane Kennedy: I suspect that my hon. Friend’s caseworker is known personally to the staff of tax credit offices. Her Majesty’s Revenue and Customs established the tax credit transformation programme to improve the services that families receive because that is very important for the success of this great project, which is now supported by parties on both sides of the House. HMRC has run several pilot projects, including a new national service to allow couples whose relationship has broken down to initiate a new single claim in one phone call. From the end of this month, it will also be revising its code of practice 26 on recovering repayments and replacing the reasonable belief test, which has caused a great deal of concern and difficulty in understanding, with a clearer test that sets out customers’ responsibilities for checking factual information alongside the responsibilities that HMRC has to fulfil.

T6. [181436] Mr. Laurence Robertson (Tewkesbury) (Con): I declare that I am a policyholder in terms of having my mortgage with Northern Rock—at the commercial rate, I stress. Many mortgage holders will be concerned about the possibility of having their loans called in, forcing them either to remortgage or to sell their homes. Under the various proposals being considered by the Government, what is the likelihood of that situation coming about?

Mr. Darling: I understand the hon. Gentleman’s point; as we all know, he is not the only one who has a mortgage with Northern Rock, as I made clear the first time I made a statement after the recess last autumn. It is for the company, or whoever owns or controls it, to decide on what terms it issues mortgages or how it deals with mortgages as and when they come up for renewal. That is not something that the Government deal with.

Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): To return to the issue of VAT reduction raised by my hon. Friend the Member for Stourbridge (Lynda Waltho), the Government said in last year’s Budget that they were seeking EU agreement to allow a reduction in VAT for certain energy-saving measures. Can my right hon. Friend give us an update on the progress that has been achieved on that?

Jane Kennedy: I can reassure my hon. Friend that those discussions are ongoing. I have been involved with them at ECOFIN, and we are pressing the case for the reduction. It is gaining support throughout Europe, but we are not yet in a position where we can change the rules to achieve such a laudable change.

T7. [181438] Mr. David Heathcoat-Amory (Wells) (Con): Following the loss of child benefit data by Her Majesty’s Revenue and Customs when on its way to the National Audit Office, I asked the Chancellor what other organisations and departments were in receipt of such personal data. The written reply failed to answer that question. Instead, it said that
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whatever they are. What about the data that go out of the HMRC that do not go through statutory gateways? Which departments and people are in receipt of those data, and why is there a continuing transfer of personal information, or leak, out of that department without parliamentary authority?

Jane Kennedy: No transfers take place without parliamentary authority. HMRC operates within clear guidelines and rules set down by Parliament. The transfer of data is a large part of HMRC’s business. The management of personal data is a critical part of what it does, which is why it is right that we consider all of the representations that we receive from Mr. Poynter. We will also need to consider the police report when we get it. A great deal of work is being done to understand the procedures that are in place, how they work and their effectiveness in order to ensure that we have the most secure procedures possible in place.

T8. [181439] Mr. Desmond Swayne (New Forest, West) (Con): Why were the Government running such a substantial budget deficit ahead of forecast, even before the credit crunch bit?

The Chief Secretary to the Treasury (Andy Burnham): The figures that I gave to the hon. Member for Poole (Mr. Syms) earlier show that this country has met debts at a lower level than any of our European competitors. If the hon. Member for New Forest, West (Mr. Swayne) is questioning our spending, let me quote the right hon. Member for Witney (Mr. Cameron) from his press conference last week—[Hon. Members: “Answer the question.”] Just hear me out. The right hon. Gentleman said that

Given that the hon. Gentleman’s party has several billion pounds of tax cuts promised, what does he propose to do about borrowing?

Mr. Swayne: Can I answer that, Mr. Speaker?— [ Interruption. ]

T9. [181440] Angela Watkinson (Upminster) (Con): What percentage of VAT registration numbers are issued within HMRC’s two week target?

Jane Kennedy: I am assured that HMRC will have met the targets in place for such registrations by the end of January.

Miss Anne Begg (Aberdeen, South) (Lab): With all the publicity about Northern Rock and various other
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things, it is important that the Government get the message across that it is right for people to save. But it is difficult for people to open a bank account if they do not have an address, they are not a householder or they do not have a passport. People under 16 have particular difficulty in opening a bank account. If we do not get young people saving at an early age, we are not going to change the public perception of saving, or encourage more people to save. What are the Government going to do about that?

Andy Burnham: My hon. Friend is absolutely right to raise that issue. I draw her attention to what the Government have done through the success of individual savings accounts. Nearly one in three adults—more than 17 million people—now have an ISA. She is absolutely right to say, however, that further work needs to be done to encourage those on lower incomes to make provision for their later life. She will know that we have piloted the savings gateway, which is a new approach to encouraging people to save, and we are considering the results of those pilots before making further decisions about extending the pilot more widely.

Mr. Andrew Robathan (Blaby) (Con): Topically, I received a letter recently telling me that 31 January is my final deadline for a tax return, and encouraging me to file my tax return online, saying that that was the best way for me to do so. Given our discussions on the efficiency of HMRC recently, how come I have also been sent a letter from HMRC saying that I cannot file online? Does the left hand not know what the right hand is doing at HMRC?

Jane Kennedy: The hon. Gentleman raises a fair point. There are categories of individual for whom security is a higher priority. [Hon. Members: “Oh!”] Not just Members of Parliament—there are several categories of people in that position, and HMRC does not have the facilities for them to file online. However, it is working to see what can be done to change that in future.

Adam Price (Carmarthen, East and Dinefwr) (PC): With British Gas about to announce profits of £750 million, why has the Chancellor rejected Ofgem’s proposal for a windfall tax on energy suppliers?

Mr. Darling: I met representatives of Ofgem about 10 days ago because I want to ensure that we have a competitive market in this country for electricity. The hon. Gentleman is right—several companies have announced significant increases for a variety of reasons, while other companies have been able to manage things differently and have not had to do that. However, Ofgem’s proposals are just that—Ofgem’s proposals.


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Capital Gains Tax

11.30 am

The Chancellor of the Exchequer (Mr. Alistair Darling): With your permission, Mr. Speaker, I would like to make a short statement on capital gains tax reform.

Following discussion, I am today announcing the introduction of a new capital gains tax entrepreneurs relief. This will complement the new regime, which I set out in the pre-Budget report last year. The reformed regime and the new entrepreneurs relief will come into effect in April.

The relief will provide a special 10 per cent. tax rate for the first £1 million of qualifying gains. Gains made on different occasions will qualify for the 10 per cent. rate up to a cumulative lifetime total of £1 million. However, gains in excess of that will be taxed at 18 per cent. The special 10 per cent. rate will be available on the disposal of all or part of a trading business carried on by an individual either alone or in partnership. It will also be available to individuals disposing of shares in a trading company, provided that the individual is an officer or employee of the company and takes a minimum 5 per cent. stake in the business. The measure will benefit the owners of small businesses when they choose to sell their business, as well as business angels and other business investors who take a 5 per cent. or greater stake in the company concerned.

As a result of the reforms that I have announced, entrepreneurs and material business investors will keep 90 per cent. of the first £1 million of gains that they make. And they, and everyone else, remain entitled to make gains of up to £9,200 a year without paying any capital gains tax. That annual exemption will rise again in April.

We estimate that, next year, around 80,000 business owners and investors will make disposals eligible for the entrepreneurs relief. In approximately 90 per cent. of those cases, we expect the individual’s entire gain to be taxed at the special 10 per cent. rate.

In the other cases, people will pay 10 per cent. on the first £1 million of gains and the standard 18 per cent. rate on the excess. The proposal remains in line with the Government’s objective of keeping the tax system as simple as possible. It is very much in accordance with representations from small business.

I estimate that the proposal will cost around £200 million a year. Her Majesty’s Revenue and Customs is today issuing further information about the scope of the new relief, along with draft legislation and supporting materials related to the capital gains tax proposals announced in the pre-Budget report. Those documents have been deposited in the Libraries of both Houses and are available on the HMRC website.

As with all other aspects of the tax regime, I am determined that we do as much as possible to encourage entrepreneurship in this country and, in future Budgets, I will seek to do more. I will therefore keep the £1 million lifetime limit for the entrepreneurs’ relief under review.


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