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21 Apr 2008 : Column 1105
6.43 pm

Mr. Michael Howard (Folkestone and Hythe) (Con): Despite the strictures of the hon. Member for Middlesbrough (Sir Stuart Bell), whom it is always a pleasure to follow, the speeches we have so far heard in the debate have concentrated, as, I suspect, will those we have yet to hear, on the effects of the abolition of the 10p rate—or as the hon. Member for Taunton (Mr. Browne) rightly described it, the doubling of the 10p rate—on the 5.3 million households who will lose out as a result, and who are among the poorest households in our land. I know that there has been a certain amount of controversy about that figure, but no Member has put forward an alternative. The only Member who came close to doing so was the Chairman of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall)—and, indeed, if we add up the various components he itemised in his speech, we get to a number that is pretty close to 5.3 million.

It is right that we should concentrate on that aspect of the matters before us this evening, because there is no doubt that this change will cause genuine hardship to people such as the young man I met in a supermarket in my constituency on Friday. With great pride, he told me that he had been unemployed for some time and that he had just got a job in the supermarket. I congratulated him, of course. He is precisely the kind of person whom we ought to be helping by making work a more attractive prospect. It is madness to take action that will make the world of work less attractive to him and others like him, as this change will do.

However, I want to concentrate in my brief contribution to the debate on another aspect of the change: what does it tell us about the Prime Minister? I have studied the Prime Minister for many years. We entered the House at the same time, after the 1983 election. During the 25 years that have elapsed since, I have had ample time to get to know him, sometimes at close quarters, such as when he was Chancellor and I shadowed him, and at other times from a distance. I do not want to damage him by praising him too extravagantly, but I have long had considerable respect for the Prime Minister. It has always seemed to me that, quite unlike his predecessor, he brought to his political life a clearly formed philosophy and a deep-seated sense of values. He wanted to help the poor, and he cared about social justice—indeed, we all do, although we may differ radically on what is the best way of achieving that eminently desirable goal.

It has always seemed to me that the Prime Minister has been clear in his own mind that the best way of helping the poor has been through old-fashioned, socialist redistribution. By and large, that is what he tried to do during most of his tenure as Chancellor. Of course, that has given rise to a great deal of internal tension, because he was never prepared, or allowed, to admit that that was what he was doing. The word “redistribution” was expunged from the new Labour lexicon, so it was all carried out by stealth—and it was only moderately successful, largely because the Prime Minister’s chosen weapon of the tax credit system is so complicated and unwieldy that many do not claim what they are entitled to claim, and many who do claim suffer severe hardship when overpayments are recovered. I was, however, always prepared to give the
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Prime Minister credit for good intentions; I always thought that although his methods may have been flawed, his intention was clear.

So how on earth did it come about that this Prime Minister could introduce a change that hurts so many who are among the least well-off in our society? What is the explanation? We know that in one sense the explanation is that through making this change he found the money to reduce the basic rate of income tax from 22p to 20p, but why did he choose to benefit the somewhat better-off at the expense of the less well-off?

The hon. Member for Hyndburn (Mr. Pope) said in his short-lived early-day motion earlier in the month that that was not the intention of the Government—that, in effect, it was an accident. However, no one doubts that the Prime Minister is a very clever man with a reputation—although perhaps not always well deserved—for prudence and caution. It is inconceivable that he could introduce such a measure without making a careful assessment of its consequences. After all, as Chancellor—when he introduced the Budget we are discussing today—and now as Prime Minister, he has held in his hands the power to make a real difference to the condition of life of millions of our fellow countrymen. I do not believe for one moment that he is so irresponsible that he would introduce a change of this kind without carefully thinking through all that it would mean for those affected. No, I think that the Prime Minister knew very well what he was doing, and he was doing it deliberately and for a purpose.

Of course, we can only speculate about the reason, but I am afraid that none of the likely candidates reflects well on the Prime Minister. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, said, in an excellent speech that has rightly earned tributes from all quarters of the House, that it was to curry favour with the then Chancellor’s own party in advance of a possible leadership election. That is certainly one explanation, but I confess that I am somewhat sceptical about it. I think that if there had been a leadership election, quite a lot of attention would have been paid to the consequences of doubling the 10p rate, and I am not sure that it would necessarily have helped the then Chancellor.

Another possibility is that, even at that early stage, the current Prime Minister had an autumn general election in his sights. What better platform to appeal to middle England, he might have thought, than a reduction in the basic rate of income tax? If that were achieved at the expense of those who were less well off, so what? That would, of course, have been an extremely cynical act. Had it been put to the test, I do not think that it would have worked. We all want to better ourselves, but very few of us, if any, want to do so at the expense of those who are less well off than ourselves. If an autumn election had taken place, I do not think that the Prime Minister would have reaped the electoral reward that he may have expected from the policy.

I am afraid that I cannot put out of my mind the thought that there may have been another, even more unworthy, reason for the Prime Minister’s action. We all remember the flourish with which he finished his Budget speech last year. Without leak or prediction, the reduction in the basic rate of tax was produced, like
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the proverbial rabbit out of a hat, in the last few sentences of his speech. It had not been leaked or predicted, and came like a bolt from the blue.

As we all know, the reply to the Budget is given by the Leader of the Opposition. It is often said that it is the most difficult speech in the parliamentary calendar, and as someone who has had the dubious privilege of delivering it on two occasions, I am rather inclined to agree with that assessment. The Leader of the Opposition is not given any notice whatever of the Budget’s proposals. The hon. Member for Taunton missed the point that immediately after the then Chancellor announced that shock, unexpected, unanticipated reduction in the basic rate of tax, my right hon. Friend the Leader of the Opposition had to get to his feet to reply.

I am afraid that I cannot entirely escape the thought that at least one reason behind the Prime Minister’s action was the hope and belief that it would wrong-foot and embarrass my right hon. Friend and cause him to stumble at precisely the time when all the media’s attention was upon him, and that that would damage his reputation, possibly even permanently. In the event, that proved a total miscalculation, as has happened so often on other occasions. My right hon. Friend dealt with it with his usual aplomb and the Prime Minister’s arrow conspicuously failed to hit its target.

What a tragedy it is that a man who undoubtedly came into politics wanting to help the poor, who devised extraordinarily ingenious and complicated policies for doing so, and who staked his reputation and integrity on that cause, should end up betraying those ideals, betraying those whom he had promised to help and, ultimately, betraying himself. What was the slogan of which we heard so much early in his premiership? “Not flash, just Gordon”. Well, we know an awful lot more about Gordon now, and I suspect that we will hear an awful lot less of that slogan.

6.54 pm

Mr. Eric Illsley (Barnsley, Central) (Lab): It is a pleasure to follow the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), although I am not sure that I agree with his analysis. I do not think that when my right hon. Friend the Prime Minister was Chancellor, he would have designed the replacement of an income tax rate simply to wrong-foot the Leader of the Opposition. That is a simplistic scenario. I suggest that he might have decided, wrongly, to try to distance himself from the then Prime Minister and establish his own manifesto before a possible autumn election.

I shall return to the 10p tax rate, but I turn now to a matter that I have raised in the House on a number of occasions recently—the rates of alcohol duty that are in the Bill and were announced in the Budget. I declare an interest: I am the honorary adviser to the northern Federation of Licensed Victuallers Associations, which, like most people in the pub industry, is concerned about the increases in alcohol duties, particularly that on beer. Duties on other alcohol are not as punitive and are not having the same effect on the pub industry.


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It is no secret that the pub industry is in trouble. Both the Prime Minister and the Chancellor have been lobbied on the issue a great deal in the not-too-distant past, and there has recently been a flurry of reports on the industry’s problems and the crisis that it faces. Various estimates have been made of the number of pubs that are closing each week in this country, ranging from 30 to 60. Figures have also made the broadsheet press, stating that the last time the volume of beer sold was equivalent to the present was in the 1930s. They also stated that the beer market has fallen by 22 per cent. since its peak in 1979, and beer sales have fallen by 49 per cent. since then. The breweries’ profits have decreased by some 78 per cent. There has been a huge decline in beer sales in pubs, and the increases announced in the Budget have increased that problem.

One problem that the beer industry faced last year was the smoking ban, which has had an effect on pubs and clubs. The industry has not complained about that and has accepted it, but the Government’s increasing of beer duty has put another nail in the coffin of pubs and clubs around the country.

The main problem that our pubs and clubs face is the sale of alcohol in supermarkets, which have targeted alcohol sales as something on which they wish to take over from the pubs. They are in competition with pubs, and at the moment they are winning by selling alcohol at less than the wholesale cost, as a loss leader at a lower price than they pay for it. Alcohol is sold to people who drink at home, in an uncontrolled environment, whereas there are controls on them when they drink in a public house. Pub operators and owners have to operate to codes of practice, whereas people drinking at home can drink as much as they like. If alcohol is extremely cheap, as it is in supermarkets, it is easy for them to do that.

I am talking not about under-age drinking or sales to minors but about sales to an adult population, particularly those between the ages of 18 and 35, who drink alcohol bought from supermarkets. We have debated the matter before in the House. The phrase used is “pre-loading”: young people drink at home among their friends before they go out to a pub or club. Unfortunately, the drunkenness kicks in at the last licensed premises that they visit. The pubs and clubs get the blame for binge drinking, yet a lot of this drinking is done at home.

There has been a call for controls to be placed on such sales by supermarkets to try to make pubs more attractive, to promote them as controlled drinking areas and to prevent them from going out of business in the face of competition from supermarkets and their loss-leaders.

Mr. Binley: I am delighted with the terms of the hon. Gentleman’s argument and he is making a very valid point, especially with regard to rural pubs, which have been particularly hard hit by the smoking ban and the increases that we are discussing. They are the heart of our rural communities. Does he agree with me that we are in danger of losing more and more of them, and that that would be bad for our rural communities?

Mr. Illsley: I am grateful to the hon. Gentleman for that and yes, I do agree with him. Attempts have been made to deal with the situation. One initiative aimed at rural pubs used the catchphrase “The pub is the hub”.
21 Apr 2008 : Column 1109
Some rural pubs were given post office counters and internet connections in an effort to attract people there to do business, and to retain the pub as part of the community by allowing it to go further than just selling alcohol. This is a big issue, particularly in rural areas, but even in urban areas pubs are closing at a drastic rate.

I have referred before to sales promotions in supermarkets, so I shall not dwell on this point. We debated this issue in the House on 6 December, and I gave examples of supermarkets offering cases of beer at the discounted rate of three for the price of two, and three bottles of spirits for the price of two. In one instance, a 75 cl bottle of whisky was sold at £9.99, yet the 1 litre bottle was sold for £10—for an extra penny. It might interest Treasury Front Benchers to know that on the day of this year’s Budget, supermarkets knocked £5 off the price of a bottle of spirits. So whatever the message that the Government were sending out regarding controlling or curbing drinking, the supermarkets cocked a snook at them on that one.

Further such examples have been given in debates in the House. Budweiser sold beer to Morrisons supermarkets at £9.82 per case excluding VAT, and Morrisons sold those cases for £10—the same as, or less than, the wholesale cost. The supermarkets are taking the mickey out of the Government and ignoring any message that comes across on safe drinking by selling at a loss.

In 1968, a can of Tetley bitter sold at the off-sales at a pub in, say, Yorkshire, where the Tetley brewery is located, for the equivalent of 79p. Today, a can of Tetley bitter costs about 55p. In February 1986, when, VAT was 15 per cent., a pint of Tetley bitter in a pub cost 68p. If we add 2.5 per cent. VAT to bring it up to the present rate and we allow for inflation, that price rises to £1.51. Today, a pint of Tetley bitter is being sold in pubs in Leeds, for example, for between £2.40 and £2.50. Such is the cost to pubs of overheads and so on that they simply cannot compete with the supermarkets. Whereas a pint of Tetley bitter is £2.50 in a pub, it is 55p down the road in the Asda supermarket, for example. We are talking about a figure that is 59 per cent. higher than the retail prices index. This is the competition from supermarkets that pubs are having to deal with.

How do the supermarkets get away with that, and how do they fund it? The answer is simple—part of that funding comes from us, the taxpayers. Through the VAT regime, the supermarkets can claim back some of the VAT resulting from such sales. For example, if a pub buys £200 worth of beer, it will try to sell it at a profit to cover its overheads. It pays £35 VAT on the £200 of beer and claims £17.50 back. A supermarket buying £100 worth of alcohol will sell it at £75. The VAT on that figure takes it to £88.12, so it is paying £13.12 in VAT but it claims £17.50 back, just as the pub does. However, the net contribution to the Treasury is £4.38, so the taxpayer is subsidising the supermarkets to sell alcohol at a loss. We are not claiming the full amount of VAT back. After taking into account VAT, the net loss to the supermarket on £100 of alcohol, which it sells at £75, is £20.60. It simply recovers that by increasing the price of goods in the non-VATable area, which, of course, is food. That is another reason why food prices are increasing.


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That is a rather clumsy example of how VAT works, but if we apply those figures to alcohol sales of some £50 billion in our supermarkets, which are avoiding VAT and requiring us to pay for it, we can see exactly what the Government are losing. If they addressed that fact and claimed some more VAT back off the supermarkets, we would probably not be having the debate on the 10p rate of income tax, as plenty of revenue would be coming in. Something has to be done about how supermarkets can avoid their responsibilities in respect of VAT and sell alcohol as cheaply they do.

Another suggestion that has been mooted heavily is to rate supermarkets on the areas in which they sell alcohol on the same basis as pubs—in other words, on turnover, not square footage. The rate that would be paid by a supermarket on the section of it that carries alcohol would be higher than the rate for the rest of it, but on a basis equivalent to a pub.

I turn now to an issue that is not covered in the Finance Bill, but which I and other Members think perhaps should have been: VAT on bingo participation fees. Some of my colleagues and I have been lobbying the Government for a number of months on the issue of bingo duty. Just as pubs are closing, so are bingo clubs. Nine have closed already this year, and some 57 closed last year. The bingo industry has made representations to the Government for a number of years regarding what it refers to as

on bingo played in licensed clubs. Licensed bingo remains the only gambling product subject to double taxation, which results in an effective tax rate of 28.2 per cent., compared with 15 per cent. for most other gambling products. The industry believes that this is illogical.

I can explain the situation very simply. If a Member of this House goes into a betting shop to put a bet on a horse, they are not charged an entry fee or required to pay anything to place that bet; they simply pay the stake over to the bookmaker, who takes it at a certain set of odds. If a person walks into licensed bingo premises to play bingo, they might be charged for entry or for the bingo card on which they will play the game, and anything that they buy within those premises will also be subject to a charge and to VAT. So bingo operators are subject to VAT and what is known as gross profit tax.

In 2003, the Government chose not to remove double taxation from bingo. There are some 3 million bingo players at any one time; they continue to be disadvantaged by this system, and bingo clubs continue to close. Bingo is a soft form of gambling that appeals mainly to women, and all constituencies contain bingo clubs. Bingo should not be subject to this level of taxation. We should be encouraging safer forms of gambling, rather than promoting casinos and all the rest of it. I mentioned that there are 3 million bingo players at any one time, but I should also say that the total membership of UK bingo clubs is about 17.5 million people—that is an average of 30,000 members per club. If an hon. Member’s constituency contains a Gala bingo club, the chances are that 30,000 people will be registered as members of it. My local club in Barnsley, Central has 26,000 registered members.

The removal of VAT on bingo clubs would be cost-neutral to the Treasury because it would help to keep clubs open. The £75 million that the Government get from VAT on bingo clubs is countered by the loss of
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tax from other areas of revenue. The Bingo Association and the bingo industry are therefore saying to the Government, “You’re allowing these clubs to close at an alarming rate, and you’re losing the VAT and other revenues from them. If you waived VAT and stopped the double taxation, you would keep that VAT and you would also get other revenue from people paying tax on other aspects of the clubs.”

Stewart Hosie: I know that one of the arguments has been that the removal of VAT might require a derogation from the EU, but can the hon. Gentleman confirm that no such derogation is required in terms of gambling or gaming—that matter is purely at the discretion of each state—and that there would be no technical, legal or European obstacle to removing VAT on bingo?

Mr. Illsley: The hon. Gentleman is right to say that that very technical issue would not require a derogation, because in order to levy VAT on bingo as we do, the Government apply a derogation to the existing European Union legislation. This issue is subject to a court case, known as the Linneweber judgment. I shall not go into that this evening, because it is extremely complicated and I would not want to bore hon. Members rigid by referring to it. In order to remove VAT on bingo duty, we would need an exemption from the exemption that we already have. The issue is complex, but it would not be difficult to remove VAT on bingo. As I have mentioned, the wider aspect is that the Government will lose revenue from the closure of bingo clubs, and our constituents will be deprived of a particular leisure activity.

I mentioned that nine clubs have already closed this year at a potential cost to the Treasury of £5.6 million, which adds to the £25.9 million potential cost of the 37 clubs that closed last year—that already represents more than the tens of millions estimated by the Treasury. I hope that the Government will re-examine bingo duty as the Finance Bill goes through Committee. As I say, we have lobbied hard on this matter, from the Prime Minister downwards, to try to get some relief.

My remaining comments will be about the 10p tax rate, which has been widely covered by hon. Members. I do not have much to add, except to say that I cannot understand why this Government, who have known about this for a year and have done the calculations, have abolished this 10p tax rate without realising the consequences. Like many hon. Members, I have been out campaigning in the local government elections and have been surprised by the representations that I have received on the doorstep, and by the number of letters and emails I have received about this matter. That is mainly because, like other hon. Members who made representations to the Treasury on behalf of constituents, I was assured that this would affect a small number of people at a very small level of income. As it is, that level of income is obviously very important to the people affected, because they are on low incomes, and I cannot understand why a Labour Government have simply not thought this through.


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