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I want to raise another point that might interest the Minister, about which something could be done quite quickly. We know that over the next 10 years or so the Government want everyone to have a smart meter. One of the key issues for me is the potential smart meters have to benefit the environment and tackle fuel poverty.
I have in mind what I would call a super-smart meter. The big worry about the domestic energy market is the alleged lack of competition. All sorts of investigations are going on, and consumers think that the companies all put their prices up together. Clearly, we want maximum switching and want people to go for the best tariff for them. We want energy efficiency tariffs and so on. If a smart meter records someone’s actual consumption of gas and electricity, why should not the information be sent to a website such as moneysupermarket.com—it has to be a two-way flow of communication—so that it can look at all the tariffs and shop for the customer? The customer would not have to be online, web-savvy or anything like that. The smart meter would do it for them. It would come back and—it might have a Stephen Hawking-style voice—it would say, “It’s EDF for you this quarter”, or whatever else. In other words, it would match customers’ circumstances with the optimum tariff and switch them to it.
The technology would probably be fairly straightforward. The company would need bank details—practical issues would have to be resolved—but instead of having managed methods of controlling the energy market and competition, it would almost be the economist’s dream of perfect competition. We would have an almost infinite numbers of buyers, perfect information, negligible transaction costs and regular switching, which keeps companies on their toes. Fuel companies will hate it, because they will not have the stickiness that means customers stay with them when they should not. I say this to every Minister I meet, and I hope that at some point someone will take me seriously and adopt it. [ Interruption. ] I am pleased to hear the Minister for the Environment say that it is a good idea. I am grateful for that.
I have a couple of final observations. I listened with interest and a lot of sympathy to the hon. Member for East Surrey. I agreed with a great deal. I waited for the answer. He came up with some of the things that the shadow Chancellor has said, many of which are gimmicks. He asked where the green ISAs were. I travelled in by tube from Paddington to Westminster, and there is an advert that says, “Get your green ISA.”
Gregory Barker: With respect, before the hon. Gentleman starts to criticise policy he ought at least to take time to understand it. A green ISA would be an extra amount in addition to the current ISA, which could be invested exclusively in companies at the forefront of green innovation and on course to meet our national CO2 reduction targets. It is in addition to the existing ISA, not just another product. Perhaps he could take time to understand the idea before he attacks it.
Steve Webb:
It clearly is a gimmicky idea, and I say that for a reason. There is a cost-benefit analysis for each measure, as we heard from the hon. Member for Nottingham, South. Each scheme has a cost and a return. The idea that the presumably higher rate tax relief for many investors delivers the best bang for the buck in delivering improved energy efficiency is extremely
implausible. The investment will be made in tiny chunks. The scale of investment needed for such things is vast. A few thousand pounds will come in from, on average, relatively wealthy individuals at the cost of a hefty tax break. Essentially, such ISAs are tax breaks for the well-off. There are far better ways of spending that money that would benefit the fuel poor, such as home insulation. I put it to the hon. Member for Bexhill and Battle (Gregory Barker) that money spent insulating a poor pensioner’s draughty house delivers a vastly better return for Government cash than tax breaks for high earners through additional ISAs.
Gregory Barker: The hon. Gentleman does not grasp that we need to do all those things. Is he aware that there are 17 million ISA savers—albeit that most of them currently hold those accounts in cash because of the unfortunate economic situation? As there are 17 million ISA holders, they are not just the prerogative of the high-income few. This is about driving dynamic industrial change across our economy, making genuine change, driving capital markets and recognising excellence in British companies.
Steve Webb: There was an interesting elision—in fact, the hon. Gentleman corrected himself as he spoke. He knows full well that the majority of ISAs are cash ISAs. He is talking about a further tier of ISAs, so the savers who can make that additional contribution will, by definition, be the wealthiest. The poorest people cannot even reach the existing threshold. They would need thousands of pounds more. A relatively small proportion of ISAs are equity ISAs, and I will bet any money that a high proportion of the equity ISA holders tend, on average, to be higher income earners. This is potentially a highly regressive way of delivering marginal benefit. There are so many better and more efficient methods, but because the shadow Chancellor has no substantive policies, he goes for these grand gimmicks.
It was interesting to hear the hon. Member for East Surrey ask about the proceeds from the third round of emissions trading auctions. He posed the rhetorical question, “Where will the money go?” but he did not say what the Conservatives would do with it.
Steve Webb: Can the hon. Gentleman tell me that the shadow Chancellor has said to him that the money can go on public spending? I should be very interested to hear a crystal clear answer to that question.
Mr. Ainsworth: I hesitate to intervene on the hon. Gentleman, because I sense that the House is getting rather tired of him. We have already said that we will use some of the proceeds from auctioning the permits to fund the feed-in tariff system.
Steve Webb: We are talking about a £9 billion windfall in the second round, and the third round of licences will presumably raise even more. Simply to say “some” when the amount could be between nought and £12 billion is far too vague for a party that has pretensions to government.
Kelvin Hopkins: I want to make a point in support of the hon. Gentleman. He says that investing in insulating poor people’s houses is a much better way of spending money. There is an opportunity cost to both courses of action, but we should spend all the money on investing in poor people’s home insulation, to the benefit of everybody.
Steve Webb: I certainly share the view that that is a priority, and it is an improvement that we can make now, rather than in 2019 or whenever. To draw together the threads of my speech, my priority is to stress the urgency of the situation. There is a mismatch between the grave tone of the rhetoric and the scale of the problem on the one hand, and the extreme modesty of the measures on the other.
I want to mention one other thing that can be done now. We know that even sober-suited organisations such as Ofgem have said that there is a £9 billion windfall for energy companies in the second round of EU emissions trading. It is a huge opportunity to spend money on the things that we have been talking about—home energy insulation and encouraging renewables—without increasing the tax burden. As the hon. Member for East Surrey says, we do not have to wait until the third round of EU emissions trading in 2012; the windfall in the current round could be used to encourage renewables through feed-in tariffs, which we support. The windfall could also be used for investment in carbon capture, which is another part of the mix. That would have been so much bolder, so much more effective, and so much more in line with the scale of the problem. We have had a huge disappointment. I hope that in years to come we do not rue the fact that we failed to take action now, and do not, as Nick Stern says, have to take much more expensive and dramatic action.
6.12 pm
Harry Cohen (Leyton and Wanstead) (Lab): I want to speak about the Budget overall, but I shall start by giving my pennyworth on the environmental issues. First, I agree with the Secretary of State that the main tool the Government have is not the Budget but the Climate Change Bill, and I therefore look to him and the Government to agree to including much stronger carbon emission targets in the Bill.
Secondly, I welcome the 10 per cent. increase in air travel tax in the Budget; it is now the plane that is taxed, rather than the passenger, but we have to do more than that because air travel is a key source of carbon emissions, and we need to get a grip on the issue. The Government cannot increase the size of every airport, either. They have to curtail airport expansion as part of a proper climate change policy.
My third point is on traffic congestion. Again, the Chancellor was right to put a tax on the gas-guzzlers—the high-carbon vehicles—but the Government need to be more courageous on price, including petrol price, and on public transport. I know that there has been a big increase in public transport, and I welcome that, but more needs to be done. More investment is needed in green public transport; that is where the emphasis should be. We need to move away faster from oil-based fuels.
On energy efficiency, the priority must be that which the Government set in their early years in power—helping vulnerable people in their homes. We must go back to that target. I shall say a bit more about that in the main part of my speech. We should encourage combined heat and power schemes, the use of solar panels and microgeneration in new homes, and there should be lots of incentives for people to use those technologies in existing homes, too. We also need promotions encouraging people, in a sensible way, to use less energy. That is an important point, and we could start with public offices, where the lights are burned all day and night, unreasonably. They could set an example.
The final point I want to make in what I hope is a succinct summary of green issues concerns renewables. The emphasis has to be on renewables; I think that they are a national priority. They should be considered to be in the national interest, including when there are objections to them. Of course we will still need to give the issues proper hearings, but national interest should be a factor in decisions relating to renewables.
I now turn to my main comments on last week’s Budget. The TUC called it
“a sensible Budget for the overall economy, but something of a missed opportunity to make real progress to a fairer society”,
and I agree with that assessment. When the Chancellor was interviewed on the radio the morning after the Budget, he said:
“We are where we are”.
I now think of it as the “We are where we are” Budget. That was really an admission that he did not have a great deal of room for manoeuvre in the circumstances. Those circumstances include a possible world recession owing to the crises in the American finance and mortgage markets and very high oil prices. Maintaining economic stability in the UK in the face of that is essential, so it was a holding Budget, and in many ways I understand why.
However, when we consider where we are, we have to take into account the wasteful cost of the wars, including the war in Iraq, which contributed to high oil prices, and the unwise handouts given to private companies so that they can encroach on public services. That includes the almost £2 billion for the London underground that was wasted on Metronet. There has also been no proper check on the speculation by finance capitalists that engendered the current downturn. The horse has now bolted, but I still think there need to be controls on the credit and profits with which those finance capitalists can speculate.
To come back to the point about encroaching privatisation in the public sector, I would say that there is a heavy cost attached to private finance initiatives. There was a report in The Guardian online—I read it in my Library research fact sheet—headed “PFIs move offshore”. It says:
“Billions of pounds of private finance initiative...including the refurbished Treasury headquarters in Whitehall and the new Home Office, have been moved off-shore by their City owners to avoid paying tax on their profits.
More than 50 PFI schemes have now been included in portfolios held in Channel Islands tax havens by three major PFI investment companies, HSBC Infrastructure, 3i Infrastructure and Babcock and Brown Public Partnerships”—
not Prime Minister Brown, I presume. The article continues:
“Once the buildings have been completed, up to 90 per cent. of the ownership of the UK-registered company running the PFI is transferred to the companies which are based in the tax havens. This means that the income and profits from running the PFIs will be free of UK tax for up to 40 years, depending on the duration of the PFI.”
If the people concerned are not to pay tax, that is a scandal that the Government must get to grips with. In addition, extortionate, exorbitant amounts are charged for any changes to PFI contracts, as was pointed out in a recent National Audit Office report. Millions are being charged. The contracts are not even being tendered; they go straight to the existing PFI contractor, and that has implications for the green agenda, because in time we will want to change the buildings concerned and make them more green-sensitive. The PFI contract owners will have us over a barrel and will charge what they like. The Treasury has to look at that aspect of PFI.
I started with the issue of fairness and I return to it now. I support a non-dom tax on the super-rich who turn up to make profits out of Britain without living here. Such a tax is reasonable. However, the Chancellor said that he would look to close the loopholes. I have been in the House a long time and I have heard that said in virtually every Budget. As the TUC points out, big companies and the super-rich use plenty of loopholes to avoid paying their proper taxes.
I refer the House to the booklet “The Missing Billions: The UK Tax Gap”, which was written by the accountancy and tax specialist Richard Murphy. He looked at 50 top companies and says that their effective corporation tax rate is 22.5 per cent., not the 30 per cent. agreed by Parliament. He says:
“The fifty largest companies almost always pay 5 per cent. less tax on average than they declare in their accounts.”
He goes on to say that in the seven years to 2006, those companies’ effective tax rate fell by 0.5 per cent. each year. The leaflet shows how super-rich individuals avoid paying their fair share of tax and that £3.2 billion is lost by turning earned income into investment income, which is taxed more favourably, or by shifting the income to others, such as spouses, in lower or nil tax bands. Another £3.8 billion is lost because transactions are moved out of the UK; £0.5 billion is lost by turning income into a capital gain and £4.8 billion is lost from various kinds of tax planning.
The leaflet says that half the amount lost to tax avoidance could raise the level at which the higher rate tax starts being paid by £10,000 a year. That would offer significant help to those on middle incomes. The same amount could increase the state pension by 20 per cent., reduce income tax by 3p in the pound or build an extra 50 hospitals a year. Half the amount lost to tax avoidance could do one of those things. The leaflet goes on to call, as does the TUC, for the introduction of a new “general anti-avoidance principle” to make it easier to tax the super-rich and the large corporations. I certainly support that.
We have had a debate on energy companies, and I welcome the Secretary of State’s response to my intervention about prepayment meters; I note that there is an iron fist in the glove on that issue. I certainly hope that there will be a requirement for energy companies to help vulnerable groups. Bearing in mind their high charges and high profits, those companies
got off lightly in this Budget. One in six—more than 4 million—households in this country suffer from fuel poverty, and I am told that that number is going in the wrong direction.
I turn back to the issue of the rich getting richer. The Fair Pay Network has produced an interesting report that points out that half of poor British children live in a working household. The report states:
“Pay rates at the top of the labour market have become obscene. 54 billionaires who are based in Britain are estimated to have paid just £15 million in tax last year, on earnings of some £126 billion. Some 4,000 City employees were awarded bonuses of £1 million or more—and most will have found some way to shelter their riches from the 40 per cent. tax rate that should apply to them. YET: 1Â1/2 million children in poverty belong to households that pay full Council Tax.”
The Government are right to use work as a way out of poverty, but
“57 per cent. of poor households are working households, up from under a half (47 per cent.) a decade ago.”
“the public sector remains the largest employer of low-paid workers aged 25 or over...64 per cent. of low-paid workers in Britain are women...Poverty in the UK has a female face, and we have the largest gender pay gap in the EU...a woman in Britain has a 14 per cent. higher chance of being in poverty than a man.”
It then makes the point that I mentioned earlier:
“the total number of poor children in working households has stayed exactly the same in the last 10 years: 1.4 million.”
That record is not good enough for a progressive Labour Government.
Before I come to how taxes are spent, I should say that I support the increases for boozers and smokers, as there are good health reasons behind them. However, progressive measures should not necessarily—or solely—be paid for through taxes on boozers and smokers. Those who have got millions in City bonuses should be paying a fairer share.
There is much to be praised in the Budget: I like the £200 million in the next three years towards achieving the target that no school should have fewer than 30 per cent. of its pupils getting five A* to C grades at GCSE. That is a good measure that will help schools in my constituency of Leyton and Wanstead. I also welcome the boost to pensioner households from the rise in the winter fuel allowance. Furthermore, the pension credit rises to a guaranteed £124 for a single pensioner and £189 for a pensioner couple, and 6,000 pensioners are being taken out of income tax.
However, Age Concern’s parliamentary briefing is worth reporting to the House. It states:
“there are still 1.8 million older people (17 per cent.) living in poverty in the UK...The Government have a target to end fuel poverty for all vulnerable households by 2010 which they have already had to acknowledge they will not reach. The trend is accelerating in the wrong direction: the number of older people in fuel poverty is likely to have more than doubled in the last 4 years alone.”
The organisation calls for a reversal of
“last year’s damaging cuts in funding for the Warm Front scheme.”
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