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On environmental taxation, when the Treasury Committee reported on climate change and the Stern review last month, we expressed disappointment that the Government’s commitment to the 1997 statement of intent on environmental taxation had not been maintained. The Treasury has used a different definition of environmental tax from the one used by the Office for National Statistics; the Treasury definition, which excludes energy taxes and taxes on transport, is, in my opinion, too narrow. I do not believe that tax measures are the only, or even the best, way to tackle climate change at national level, but the Treasury cannot continue to hide behind definitions to defend its caution in moving to a position where environmental taxes more accurately reflect the environmental damage associated with certain activities. In that context, I welcome moves to replace air passenger duty with a per-plane duty, as well as the other measures announced.
The Chancellor mentioned the savings gateway, on which the Treasury Committee has focused in the past. Indeed, last October we published a report that emphasised the importance of secure short-term savings to the financial well-being of the least well-off. We examined the success of savings gateway pilot projects, where private contributions are matched by Exchequer support. In our report, we stated that the national savings gateway
“could achieve some of the Government’s aims of promoting saving among low-income groups”
“genuinely new savers and new saving”.
“It can bring some individuals into contact with mainstream financial institutions for the first time”,
“a savings habit which continues even when the incentive of Government matching is no longer available.”
Such a scheme can certainly have a positive effect on participants’ attitudes to saving. Professor Elaine Kempson, who undertook the survey of the first savings gateway pilot project, made the point that matching strongly encouraged people on low incomes to save. I suggest that the Chancellor and others consider going further. The Institute for Public Policy Research has provided estimates of the first-year cost of a national savings gateway scheme. The IPPR assumes eligibility criteria based on those for working tax credit and qualifying benefits for those out of work, and individual contributions averaging £16 per month. On that basis, it estimates that the first-year costs of a scheme taken up by 50 per cent. of the eligible population, with Government matching of 50p for every pound invested, and pound-for- pound matching for the first two months, would be £249 million. In contrast, the Government estimates that individual savings account and personal equity plan savings are supported by £2.1 billion in tax relief each year, and employee tax reliefs for pension contributions have been valued at £5.3 billion. Expenditure of £249 million pales into insignificance next to the support given to ISAs and tax relief on pensions. I welcome the Government’s initiative, but I urge them to go further to encourage more low-income people into the financial network.
My last theme is rogue trading and insider dealing. I note in today’s press that the Financial Services Authority has taken action on rogue trading. We certainly want no
repeat here of the Société Générale incident, or of the Barings scandal involving Nick Leeson in the 1990s. Rogue trading remains a big problem, and I want the Government to support the FSA in its efforts, but I also want them to support the FSA on insider dealing. There is no doubt that insider dealing goes on regularly; I am told that by City executives. However, very little is done to bring people to court or to get to the bottom of such incidents.
An important foundation of the City’s reputation is the quality of its markets and the authorities’ determination to investigate and prosecute insider dealing. In that context, I endorse the FSA’s view that it should be given powers to confer statutory immunity from prosecution or otherwise encourage people to come forward to give evidence against the criminals who commit insider dealing. The FSA has civil and criminal powers to tackle such market abuse, but sometimes there are real challenges in securing the evidence necessary to prove that the offence has been committed. It is in the nature of the offence that there is seldom a smoking gun. Legislative change to enable the FSA to confer immunity would send a clear message to those who contemplate insider dealing: they should know that the FSA has the fullest range of tools to bring them to justice.
Rob Marris: I welcome my right hon. Friend’s comments, because when I considered that matter 18 months or two years ago, I found that the track record of the Serious Fraud Office and the Financial Services Authority on insider dealing was absolutely shocking—not a handful of cases had they prosecuted. What is needed is not only legislative change, but for those bodies to use the powers that they already have. They should also examine how such powers are used in the United States of America, where the authorities have a very different and far more successful way of proceeding on such charges.
John McFall: Exactly. When we compare what happens in the US with what has happened in the City, we see that the UK is a soft touch in that respect. Our record is abysmal. I want the Government to consider that, paying regard to what has been going on in the United States, and the FSA’s desire to ensure that the City’s reputation is cleaner, and is kept clean. They should also give the FSA the powers that other bodies have.
Rob Marris: You should visit America.
John McFall: We did visit America, and it is on the basis of that experience that I make my point. Those taking part in insider dealing should be aware that others who know of their criminality may turn against them. We need the Government to give the FSA those powers.
Mark Durkan (Foyle) (SDLP): Does the Chairman of the Select Committee not accept that if we simply allow people to come forward and get immunity, without introducing the other measures to which hon. Members have referred, it would lead to a situation in which there were super-rich supergrasses? That would be a public scandal.
John McFall: I know where my hon. Friend is coming from, but the FSA and others have a legitimate point. As I say, people should be aware that others who know about their criminality may turn against them, because we are making no progress at all on the issue. Something needs to be done, and the Government need to consider the issue urgently. I encourage them to ensure that the powers available to other prosecutors are extended to the FSA, and to make progress with the work of considering in which cases a plea-bargaining, or plea-discussion, framework would be of benefit to all prosecutors, including the FSA.
As I have said, I welcome the Budget. I welcome the stability, as the next 12 months or so will be difficult for all of us, because we live in a globalised world. We do not need any fancy initiatives; we need to hunker down to get through the next 12 months. I am delighted, in an economic sense, that the Government are doing that while paying due regard to social obligations such as the need to tackle child poverty and the problems that people are experiencing with fuel. I welcome the Government’s initiatives, and I look forward to the Chancellor and his colleagues appearing before the Treasury Committee in the next seven days or so.
2.11 pm
Mrs. Jacqui Lait (Beckenham) (Con): My impression of the Budget is overwhelmingly one of boredom. It was illuminating to look around the Chamber and see the number of people who were nodding off. It was predicted that it would be a boring Budget, and it most certainly was. It will probably be remembered as the carrier bag Budget, rather than as any other kind of Budget. If that is to be the Chancellor’s main claim to fame, I suspect that he will not be in his job for very long.
It was striking that in the midst of the anodyne messages that the Chancellor poured out in order to send us all to sleep there was little reference to Northern Rock and the issues that it has created for the British economy, and little reference to the problem that the world economy faces. I sincerely hope that we are not facing the sort of economic downturn that I remember from 1974, when the stock market fell to some 120 points, which seems unbelievable in this day and age. It may seem odd for a Conservative to quote JK Galbraith, but a close analysis of his book on the great crash of 1929 shows the similarities between the situation that the world economy is facing, and the factors that contributed so greatly to the world crash in ’29. That crash was based on pyramid selling of investment trusts, and we now face the prospect of pyramid selling of derivatives in an attempt to defy risk, but of course when one attempts to defy risk, it is spread more widely.
When risk finally comes into the equation—as it inevitably does, because nothing is risk free—the potential for collapse is much more calamitous. We are on the cusp of witnessing such a collapse as the various derivatives that have been developed in the past few years unwind through the system. My understanding is that banks across the world have lost 10 per cent. of their capital base. It is an indication of the severity of the problem that the central banks have fed so much money into the system, just a few months after they last did so. The expectation is that for some weeks, or perhaps months, there may be some loosening in the international credit
market, but as the underlying problems are severe, and as unwinding has not yet been completed, we are seeing the same situation being created for a third time in a year. If we prop up a market that is in denial about risk, those concerned will not learn their lesson, and the same pattern of behaviour will be repeated. However, if they are allowed to confront their actions and take responsibility for them, we will see the sort of scenario that we saw in 1929. I should say that I did not see what happened in 1929; I read about it. However, I did witness the crunch in 1974, and that was fingertip.
Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): I thank the hon. Lady very much for the history lesson about 1929 and Galbraith’s treatise on the subject. Would she say that there will be a market correction in the near future, or will we have to adopt far more Galbraithian responses to the current crisis?
Mrs. Lait: I know exactly what the hon. Gentleman is getting at, but I suspect that if the central banks continue to pump liquidity into the market, it will not cure the problem. The potential consequences are terrifying.
John McFall: Regarding 1929, I am reminded of the remarks of Judge Pecora, who undertook the commission of inquiry. He said that if the financiers had repeated to themselves time and again that two and two add up to four, they would not have got into the mess that they did. Does the hon. Lady see parallels with that situation today?
Mrs. Lait: I think that I have already said that that is the potential problem that we face. As a Scot, I have to say that the investment trust vehicle that caused so much of the ’29 problem was of course invented in Scotland, but there it was managed by, dare I say it, dour Scots. It was transported to the States and was then leveraged; that was the problem. That is precisely what has happened with the risks that have been leveraged into various derivatives. I have real concerns that if the central banks keep pumping money into the market, we will not unwind the derivatives, and this generation of financiers will not learn the lesson of risk.
We cannot defeat risk, and one of my criticisms, as a Conservative, is that the whole thrust of what the Government have done since 1997 is to try to deny that risk exists, and that is a very dangerous thing to do. Year after year, the Prime Minister, when he was Chancellor, would say, “I have abolished boom and bust.” We are potentially about to have another bust. We are certainly on a downturn. That causes me more concern than anything else. It is my overriding concern about the Budget, because no preparations are being made to deal with the worst-case scenario.
The Treasury is in denial. It has to be in denial; it has no money. Where the £10 billion from the Bank of England has come from, I can only guess. Is it printing money? If so, we have inflation. Is it borrowing it from the Arab states, which are raising so much money as a result of petrol prices? If so, the money has to be paid back. At some point, the latitude that we allow ourselves with regard to money will catch up with us. I have serious concerns about the fact that no preparations are being made in the Treasury to deal with the situation; the Budget tinkers round the edges.
As for the green taxes, interestingly, it is proposed that tuppence be put on fuel in six months’ time. It is not until 2010, if I read the statement correctly, that we will get Â1/2p per litre—not per year, but per litre— [Interruption.] I stand corrected—Â1/2p above the index, but that is still as a means of dealing with carbon emissions, and is not a significant change.
Taxes are being raised, but we see no offset for the coping classes, the people who have been hit for so long by the Government, with the increase in taxes being piled on top of them, along with, as my right hon. Friend the Member for Witney (Mr. Cameron), who responded on behalf of the Conservative party, said, all the extra costs that are coming with higher inflation, higher food prices and all the extra pressures on those people, who are keeping the economy afloat.
Mr. Nigel Evans (Ribble Valley) (Con): My hon. Friend speaks about fuel. She will accept that that now costs £1.08 or £1.12 a litre, or over a fiver a gallon. For people in my rural constituency, having a car is not a luxury; it is a necessity. The rural bus transport service is not sufficient. They need a car and they are being clobbered. The fact that they are being given a six-month reprieve before another 2p is placed on a litre will not be welcome news.
Mrs. Lait: I entirely agree with my hon. Friend, and I would love to find his rural garage that is charging only £1.12 a litre. I am paying considerably more than that. It will be exceedingly hard for people who must rely on their own cars, unlike the situation in London.
London buses no longer come in threes—they come in dozens and most of them are empty, which has a serious impact on congestion in London. I notice that there are mixed messages coming from the Government about road pricing. As we understand it, the Secretary of State for Transport has withdrawn road pricing, yet the Chancellor is putting money into developing road pricing. It will be interesting to get some response in due course about what is happening with road pricing.
The Budget ignores the big picture and focuses entirely on small issues. I want to examine some of the issues that I picked up from the Chancellor’s speech. There was a mention of a contract between the Government and families in an attempt to get parents into work. I am having a hard time envisaging how such a contract would work. Is it a series of separate contracts, such as those that parents had with schools to ensure that the children turned up at school? Is it a contract with the jobcentre, whereby people agree to take the first job they are offered? Is it a contract with the local authority, whereby people accept lower housing benefit and council tax, provided they get a job?
What is the contract? Will there be red tape coming out of the ears of families who just want to get back to work, because the Government think it might be a nice idea to have a contract and make people responsible, even if they do not agree with the Government’s objectives?
There is a promise about business red tape and a limit on regulation. Again, I have difficulty working out how that will happen, given that every time the Government introduce a Bill, it increases regulation. Does that promise mean, for example, that at Report stage on a planning Bill, we will see the Treasury finally
releasing its grip on planning gain supplement and tabling an amendment to repeal entirely the Planning-gain Supplement (Preparations) Act 2007? That would be a serious step towards reducing red tape, and a simple one, because the Government say they do not intend to introduce PGS at all. Why keep the Act on the statute book? Let us have a gesture of good will. What is the limit on regulation and how will it work?
The Government want to encourage zero-carbon homes. We all share that aim, but anybody who talks to the building industry will know very well that zero- carbon homes are technically impossible at present. It is possible to have, on balance and using a very complicated formula, zero-carbon communities, but not zero-carbon homes, as I understand it. The Government are trying to sound as though they are developing some serious strategic thinking on green taxes, so there are proposals on vehicle excise duty and the first year tax rate.
My problem with the Government is that they like red tape. They like producing pieces of paper that limit people’s scope, rather than encouraging it. If there is one message after 10 years of this Government, it is that they are unable to trust people to respond and to act positively in their own and their community’s best interests. If the Government want to put over a message about green issues, people will not respond to taxation on their vehicles, particularly because of the need, as my hon. Friend the Member for Ribble Valley (Mr. Evans) pointed out, to use cars in the countryside.
We should be ensuring that manufacturers and scientists work together to develop the science. There are exciting opportunities in environmental sciences. The Chancellor referred to that, although it was the usual glancing reference. The best way to make us green is through technological development, not by dragooning people into patterns of behaviour. Have the Government, after 10 years, not learned the law of unintended consequences? The minute anybody is forced into a pattern of behaviour, they find ways out of it. It is much better for people to decide willingly to go green than to force them.
Mrs. Lait: Which one shall I choose? I think I prefer the hon. Member for Foyle (Mark Durkan).
Mark Durkan: We all take the hon. Lady’s point that to make sure that vehicle emissions are at a much lower level, we want science and the motor industry to co-operate fully, but does she accept that fiscal measures such as vehicle excise duty are intended to create market conditions and market incentives that will motivate a partnership between science and industry? Unless there is a market in which they can meet with new products, it will not happen. That is why it has not happened to date to the degree that it should have.
Mrs. Lait:
I disagree that that has not been happening. The hon. Gentleman may be disappointed that it is not happening at the speed he would wish, but the science is still in its relative infancy, so it is difficult to produce the family car for five. When the science moves on, the
market will move—when it becomes sensible to do so. To tinker at the edges and add vehicle excise duty to the cost of motoring is not the most effective way to deliver the changes that the Government and the whole House wish to see. We are all concerned about our green taxes.
Mrs. Lait: I want to let others in, as I know that many hon. Members wish to contribute.
I shall move on to one last point, which was not mentioned but which has been brought to my attention by a number of constituency cases—inheritance tax. The Chancellor announced last year that all widows would benefit from changes in inheritance tax. There is one very small group that is possibly the hardest hit—those whose husbands died before 1972. The people in that group are now very elderly; one such constituent is 106 and her husband died 40 years ago. The inheritance tax changes do not apply to that group of widows. I am sure that that is an oversight—at least, I would like to think so. I would hate to think that that group of very elderly widows was deliberately missed out. The money involved cannot be enormous. I hope that by the end of the Budget debate, perhaps tucked away somewhere in the Finance Bill, there will be a proposal from which every person who is liable for inheritance tax could benefit.
I have covered the broad points that I wanted to mention and have picked up on one or two smaller points. Overall, the Budget was a yawn and will have little impact on the wider economy. All it will do is reinforce the difficulties that the coping classes face under this Government.
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