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One recent benefit that we have had is, at last, the beginnings of a fall in the exchange rate. I have argued for years that we should manage the exchange rate down to a much more competitive rate. Looking at the
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state of the balance of trade, it is clear that we have a structural problem, not a temporary problem. The exchange rate was too high and a permanent structural trade deficit was the result.

The exchange rate falling is naturally good for us, but that ought to be a deliberate instrument of Government policy, not just something that happens. I hope that the Government will welcome that fall in the exchange rate and press the Bank of England not to raise interest rates. If anything, they should press the Bank to reduce them.

David Taylor (North-West Leicestershire) (Lab/Co-op): I am grateful to my hon. Friend for giving way to a former NALGO member. He talks about the need for a fall in the value of the pound, but in recent months it has fallen by about 15 per cent. against the euro. He suggests it should fall even further. Does not all that point up the correctness of the policy of the former Chancellor, who is now Prime Minister, to keep us out of the euro currency zone at any cost, by means of his five tests? Was he not right in that and proved correct in the face of all the new Labour opposition that he had to put up with?

Kelvin Hopkins: My hon. Friend, as he often does, anticipates one of the major aspects of my speech: to applaud the Prime Minister for keeping us out of the euro. It is unlikely that we will go into it now, but had we been stuck in the euro, we would not have depreciated and we would have been in much more serious economic trouble, so my hon. Friend is right.

The third lever of economic power is fiscal policy. People seem to be exercised a great deal by not only the fiscal stance—the balance between expenditure and income—but whether we should run a debt. One certainly should not tighten fiscal policy during a recession or difficult times—during a downturn in demand—but there are ways in which one can maintain a reasonable balance if one is prepared to tax in the right way. Rich people tend to save most of their money by putting it in banks—

David Taylor: Offshore.

Kelvin Hopkins: Sometimes they put their money offshore. Those people have a low propensity to consume, as it is called in the jargon, so taking a little bit more money away from very rich people does not damage demand in the economy a great deal. If that money is handed to pensioners, poor people and families with children, who tend to spend every penny that they get to live on, that helps to sustain demand in the economy. That is a simple way of keeping the economy going while not having too big a spending deficit.

We can deal with the situation, provided we are prepared to collect the money. My hon. Friend the Member for Leyton and Wanstead (Harry Cohen) cited an excellent book produced by the TUC, “The Missing Billions: The UK Tax Gap”, which sets out the amounts that could be collected, but are not. It estimates Treasury losses due to tax avoidance at about £25 billion a year, £13 billion of which is from individuals and £12 billion
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from the largest corporations. This tax avoidance is not illegal, although, as Denis Healey said:

I will not pursue that, but some tax avoidance comes pretty close to tax evasion. If the existing rules were strictly enforced and there were sufficient tax inspectors to collect all the tax, we would rake in many more billions.

That is the situation without looking at indirect taxes. “Measuring Indirect Tax Losses—2007”, a fine book produced in October by Her Majesty’s Revenue and Customs, draws attention to the vast amounts of revenue lost, especially through VAT fraud. The VAT tax gap is about £13 billion. The book also examines tobacco and alcohol duties. Tobacco smuggling alone accounts for a loss of about £3.5 billion a year.

Large sums could thus be collected without changing tax rates at all. I have done a quick calculation, and although it might involve some double-counting, it shows that £56 billion a year is lost. Let us talk about a third of that sum: £20 billion a year, which would be extremely useful. We could use it to help pensioners and children more. We could spend more on investing in energy conservation and alternative energy. We could even close the budget gap a little more and reduce Government debt. If we collected that money, we could choose to do those things.

Harry Cohen: I also have a NALGO connection. My hon. Friend and I—he, like me, is an old class warrior—would like to see resources going to the working class. Will he comment on the link between the ultra-rich and the middle class? Given that there are so many loopholes and tax fiddles, the ultra-rich are virtually paying less than the strata just below them: the middle classes. The middle classes are picking up the burden.

Kelvin Hopkins: I agree entirely with my hon. Friend. Many hon. Members will have read the “Green Budget” report by the Institute for Fiscal Studies, which points out that the bottom two deciles of the population have benefited slightly under our Government and the top two deciles have benefited fairly considerably. However, those in the middle have lost out, and one of the reasons is the gradual creeping down of the higher rate tax threshold. If that threshold had been raised—indexed, effectively—over time, many people who are paying 40 per cent. tax would not be doing so and would be better off. There are other factors that explain why those middle-of-the-road people—the very people whom all parties want to reward, because they tend to vote and to be the sort of people whom we want to persuade to vote for us—are not doing very well at the moment.

David Taylor: My hon. Friend talks about the very rich. Does he recall that the former right hon. Member for Hartlepool—now a European Commissioner—talked about new Labour being “intensely relaxed” about people becoming filthy rich? We heard an echo of that just a few days ago from the Secretary of State for Business, Enterprise and Regulatory Reform. Is my hon. Friend intensely relaxed about such comments from people at the top of our party?


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Kelvin Hopkins: I am not at all relaxed about that. I have no envy in my nature at all, but I believe in justice. Social justice requires that the rich should pay a little bit more—a lot more, in fact—and that the poor should benefit from that extra taxation on the rich.

I remind Conservative Members of the tax regime that operated when Mrs. Thatcher won power.

Mr. Bellingham: Ninety-eight per cent.

Kelvin Hopkins: Under Denis Healey, the top marginal rate was 83 per cent. and there was a 15 per cent. surcharge for unearned income on top of that, so some people were paying 98 per cent. That was possibly a bit extreme— [ Interruption. ] They were difficult times. However, 40 per cent. is considerably lower than that. Nudging up the rate for the very rich would not be a bad thing.

David Taylor: Would my hon. Friend be surprised to learn that in the 11.5 years—those halcyon years, as Conservative Members often refer to them—when Mrs. Thatcher was Prime Minister, the proportion of gross domestic product taken by taxation was a full four points higher than it has been in the first 11 years of this Labour Administration, who, of course, have many years to run?

Kelvin Hopkins: I am surprised and disappointed. There is a lot of talk about child poverty. The proportion of children living in poverty in 1979 was considerably lower than it is now. We could deal with child poverty immediately, but it would take an act of great political will to redistribute income massively from the rich to the poor. However, that is not impossible. In Sweden, child poverty is a fraction of that in Britain. I ask the Ministers present, especially those from the Treasury, to think about that. I do not expect it to happen overnight. However, we should aim to achieve it quickly, hopefully before the next election, because I am sure that we would be rewarded electorally for such action.

I want to say a little about the income tax regime. I was unhappy that we abolished the bottom 10 per cent. income tax band. Additionally, the threshold for the 40 per cent. band reaches down too low. I suggest that we put back the 10 per cent. rate, have a 20 per cent. band, and introduce a 30 per cent. rate for those on the lower part of the 40 per cent. band to reflect where the 40 per cent. band should really start. To compensate for that, we should have higher tax bands beyond that. My simple rule of thumb—I think that I suggested this last year—is that there should be a 50 per cent. rate for taxable incomes over about £60,000, and a 60 per cent. rate for those over £100,000. I do not think that anyone would find that unjust.

I remember attending a meeting some 15 or 18 years ago with people from the City. They said that they had been watching the 1988 Budget, at which time Nigel Lawson was the Conservative Chancellor. As we all remember, Nigel Lawson reduced the top rate of tax from 60 per cent. to 40 per cent. Those people who worked in the City had looked aghast at the television screen and said “But we do not need the money!” That is the spirit that I want to see now. A small number of fading pop singers might emigrate because we had
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raised their taxes slightly, but I think the great majority of people would accept such a measure if they felt that it was fair and just and would help get rid of child poverty, raise pensioners’ living standards and deal with energy problems. I believe that, ultimately, people are fair and just.

My final point is about pensions. The Chancellor rightly raised the winter fuel allowance, but I do not think it has been raised enough, and I should like it to be paid differently. I think that it should be paid as part of the basic state pension, but that people should be given double payments before and after Christmas. It would be easy to administer, everyone would receive it, and it would be taxed. The rich would not receive a tax-free lump sum at Christmas, which is what happens at present. If the sum were built into the basic state pension and taxed, it could be recycled to make a larger winter fuel allowance for those at the bottom of the income scale who pay little or no tax. I believe that that would be a much fairer and more sensible system that would be welcomed all round.

It would be possible to speak at greater length about all the matters that I have raised, but I think that I have had my time.

7.51 pm

Mr. Charles Kennedy (Ross, Skye and Lochaber) (LD): We are all aware of the constraints within which the Chancellor operated this year. We are also aware of the sense of a gathering international storm which we hope will not engulf our own economy and others across Europe: the credit crunch and all the rest. But despite the massive considerations that clearly conditioned so much of what the Chancellor could do or was prevented from doing, when some of the headline announcements in the Budget are set not in the immediate context or the context that has developed internationally since last summer but in the context of the last decade, we see that very little in the Budget does any more to redress the growing sense of social imbalance that has been such a feature of this Labour decade.

Until now, the economic situation both domestically and internationally has been benign. We should give credit where credit is due, although the Government ought perhaps to acknowledge responsibility where responsibility is due. A good deal of the domestic situation has to do with the stewardship of the former Chancellor, now the Prime Minister of the country. The sad fact is, however, that despite the undoubted greater wealth generated in the country, the social division between those at the bottom end of the income and opportunities spectrum and those at the top end has both widened and deepened, and the Budget has not redressed that. Because of the circumstances it was probably not possible for it to do so, but I think that in the context of fundamental social justice it is worth repeating that point.

I want to discuss, specifically and briefly, three aspects of the Budget from the point of view of my constituency and my part of the country in the highlands of Scotland. They are the impact of fuel duties, the policy on post offices and the issue of housing debt. On fuel duties, I want to deal not with decisions and announcements in the Budget—that is a
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side argument for another day—but with the absence of something for which I and others have called for many years: a fairer approach to fuel duties, given that, as the Chancellor himself has acknowledged, they are being levied on this occasion with not just the environmental agenda but the revenue-taking agenda in mind.

As I have said, the campaign in which I and others have been involved goes back many years. I first raised the issue in Brussels, along with my friend Jim Wallace, who was then Member of Parliament for Orkney and Shetland and who went on to become a Member of the Scottish Parliament and Deputy First Minister of Scotland. Jim and I worked closely on the issue in the 1980s and beyond, and spent a great deal of time exploring how other European Union member states were able to deliver derogations on fuel duties if their geography involved, for instance, islands or considerable areas of peripherality, if their Governments were enthusiastic about the idea, and if fuel costs had a disproportionate impact on fragile, socially remote areas.

Throughout the subsequent years—indeed, decades— the Treasury in Britain has set its face against that like flint. Civil servants and Ministers do not like derogations: they do not like them in Whitehall, and if truth be told they are none too keen on them in Brussels either. But where there is a political will there is a way. We have seen the system delivered in other EU member states, although it has never been delivered here.

Let us take one vulnerable example in my constituency, a very small, remote community on a peninsula on the west coast called Applecross. From time to time, Applecross has a petrol station. I use the words “from time to time” advisedly, because the petrol station tends to come and go depending on community initiatives of one kind or another, on the existence of a willing supplier, and on general concerns related to viability. Travelling from Applecross to the nearest permanent petrol station involves a round trip of 35 miles, and the price paid at the pump in Applecross compared with that paid in the metropolis called Inverness—let alone in the central belt of Scotland or the south-east of England—is gigantic in terms of mark-up. In a community where there is very little in the way of viable or regular public transport to meet people’s needs, the motor vehicle is in no sense a luxury; it is an absolute necessity. Such communities would benefit from a derogation which the Treasury could pursue at Brussels level, and which would deliver a fairer distribution of the fuel tax take. It is very sad that the Chancellor did not visit that issue in the Budget.

The hon. Member for North-West Norfolk (Mr. Bellingham) raised the subject of post offices in what I thought was a very good speech, particularly in relation to that issue. In the last week, we have seen the result of the “consultation”—I think that word should be in inverted commas—that the Post Office carried out in my part of the country on its proposed closure programme. The consultation received more than 1,000 responses, which is a lot in the context of the Scottish highlands. Of the 29 proposed closures, 28 will now take place; one post office has been reprieved.

I cast no aspersions on that reprieved post office, which happens to be in the constituency of my hon. Friend the Member for Caithness, Sutherland and
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Easter Ross (John Thurso), but it does seem remarkable that a so-called genuine consultation exercise should result in only a single alteration to the original blueprint. To me that does not smack of genuine consultation. My other parliamentary neighbour, my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander), is to open an Adjournment debate on the issue in Westminster Hall at lunch-time tomorrow, and he will go into more details. I will say now, however, that the Budget contains nothing at all that shows, against that backdrop—particularly in fragile rural areas—a commitment to making the surviving post office network genuinely sustainable. That is the bigger long-term worry. This is not by any means the end of the story: it is the second round of Government closures. If the Government persist in office, I will not be surprised if they are back for a third and subsequent rounds of closures. That must give rise to great concern about the underpinning of the rural economy.

Mr. Cox: Has the right hon. Gentleman heard, as I have during the process of network change, as it is called, that some of the smaller, most fragile and vulnerable post offices, which one would think were the easiest candidates to pick off, are being left intact, and that some of the profitable ones are being closed? The suspicion is that the vulnerable and small ones are being left intact so that they can be picked off later.

Mr. Kennedy: I thank the hon. and learned Gentleman for that helpful contribution. He makes a telling point, which many of us in our respective areas have heard expressed, not least by those who are most knowledgeable about the operation of the post office network and who know only too well how the management and leadership of the network tend to go about their business in getting the ducks lined up steadily over a number of years and proceeding with the original blueprint, albeit perhaps with a slightly extended time scale.

To complement the point that the hon. and learned Gentleman has made, I would point out that, apart from the formal consultation that has taken place on the hit list, or the checklist, of likely casualties, other closures are already taking place, under the radar, under the guise of temporary closures. The sub-postmaster or postmistress, for whatever personal reasons it may be—retirement, or moving on to something else— gives up the tenancy and the professional contract to provide those Post Office services. That outlet then undergoes a period of temporary closure, but all too often that temporary closure slips into permanent closure. That does not appear necessarily on the radar as part of the formal consultation, but the impact in many of these communities is every bit as real because the net conclusion is identical. Therefore, not least in rural Britain, there is disappointment that the Budget is not taking more cognisance of the effects of other Government policies. Most of the measures in the Budget are certainly not seeking to ameliorate those effects.

The third point concerns housing debt. Obviously, post-devolution, responsibility for housing policy generally in the Scottish context is transferred to Holyrood and to the Scottish Parliament, which is right and proper. However, I have been in correspondence
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with the Treasury because there is still a reserved aspect to that, and UK Treasury reserved powers are involved.

I requested of the Chief Secretary to the Treasury earlier this year a meeting with colleagues from the Scottish highlands to press our particular concerns about what has happened there. They are particular to the Scottish highlands, but they are not unique in the UK by any means. Housing debt there, running at approximately £160 million, remains with the councils after tenants locally, in a highlands-wide referendum, rejected the stock transfer proposals. The difficulty is that councils in that position need to be given an option by the Treasury to help them to address the existing maintenance backlog as well as to expand affordable housing stock. At the moment, they are caught in the middle. They can do neither, because of the position they find themselves in. In an area such as our own, it is especially pressing owing to the enormous difficulties in meeting energy efficiency and fuel poverty standards—in many areas there is an absence of domestic gas supply—against a backdrop of soaring fuel bills. I hope that the Minister or the Whips who are listening will be able to encourage a positive response from the Treasury to our request. There is a genuine desire to have a serious and constructive discussion about that matter because it is a pressing one.

Despite the constraints that I touched on at the outset of my speech, which are obvious and unavoidable at the moment, and therefore the somewhat non-event nature of quite a lot of this Budget, perhaps we shall look back in a year or two and say that the most significant aspect of the non-event Budget was that it flagged up the fact that the main event will be pushed back to 2010, rather than 2009, by which I mean a general election. However, within those constraints and against that backdrop, I think that on those three areas in particular—fuel duties, the future of post offices and the Post Office network, and housing debt—for large swathes of Britain and for my own part of the country in the highlands, there is much disappointment that there is nothing at all in the Budget to address them. For that reason, among others, I will oppose it in the Division Lobby tomorrow night.


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