Justine
Greening: I want to take the hon. Lady back to her earlier
comments about poverty and obesity. She commented on that link, a
positive correlation—the greater the poverty, the greater the
chance of being obese. That may not be surprising, if things like
chips, hotdogs, burgers and biscuits have zero-rated VAT, when fruit
juice has standard-rated
VAT.
Angela
Eagle: It is also possible, Sir Nicholas, to eat your five
a day without incurring any VAT. The issue that we are dealing with is
that VAT is a purchase tax that has developed. We have zero-rating for
about 60 per cent. of food, because that is what we had when
we came into the EU. There are anomalies all over. There is the VAT on
particular foods. There is even an anomaly with water—if one
drinks tap water, it is not VAT-able, but if one drinks it out of a
bottle, it is. VAT does not apply to tap water at all, but people still
do not drink enough water. I suggest to the Committee that whether VAT
exists on a product or not is not the only difficulty that we have
here. The result of reducing VAT might not have that positive a
correlation with the end that we all want to see. We have to think
about whether the instruments that the new clause suggests, and which
we are considering, would achieve the desired end. I do not think that
that is by any means proved at the
moment.
Mr.
Hammond: The hon. Lady is putting her case entirely
reasonably. It is precisely because we agree—we would agree with
every word she has said in that last paragraph or two—that we
are not considering a prescriptive new clause, saying that VAT shall be
reduced on fruit juices. We are considering a new clause that asks the
Government to get at the underlying facts and set them out so that hon.
Members can consider
them. We
accept that the issue is complicated. We accept that there all sorts of
anomalies in the VAT system. She talked about substitution between
products. The essence of the argument is that there is substitution
between fruit and pure fruit juices. It happens, by and large, to be
easier to get children to take fruit in the form of juices than in the
form of solid fruit. I speak as one who has tried. However, she made an
interesting point about the negative dental effects of drinking too
much fruit juice. There are arguments on both sides. It is precisely
because we want to understand the balance of those arguments that we
are seeking to persuade the Government of the merits of looking into
that and setting out the answers in a way that all Members of the House
could
consider.
Angela
Eagle: I do not disagree with that, but there are other
difficulties. It is possible to remain sceptical as to whether VAT is
the right instrument to achieve that, particularly given that it is
unclear whether we could draw the boundaries in a way that would be
sensible from a health point of view. We also have to think about the
opportunities to use the money in other areas that
would be forgone if we had a reduction in VAT, such as extending the
school fruit and vegetable scheme to nursery education. That might be a
better use for the
money. 5.30
pm It
is important to consider these issues carefully, and it is only right
that they are considered. It is appropriate also that we publish any
supporting information, but I would ask that this be part of the normal
Budget process rather than a completely separate process, which this
new clause suggests. We can then look at the case for a VAT reduction
in the context of the broader fiscal position and alongside alternative
tax proposals and other potential policy
instruments.
Mr.
Hammond: I think we are in danger of agreeing on
everything here. We agree with what the Minister said, and the new
clause specifically refers to the Exchequer costs as well as the health
benefits. They clearly have to be weighed, and we do not know the
outcome any more than she does. From the general tenor of her remarks,
the Government are doing work in this area. Can she give the Committee
any commitment as to whether it will be the Budget next year or the
Budget the year after when the fruits—if I may put it that
way—of that work will be delivered?
Angela
Eagle: We are doing work, and we are considering whether
this is an appropriate instrument. There was some consideration of it
in the run-up to this year’s Budget. These things are still
under review, and it would be wrong of me to come up with a definitive
answer in the next month or two, but I can assure him that we are
considering all these issues. We share the anxieties, if I can put it
that way, of the challenge that is before us in terms of the trends in
childhood obesity. I note that the Department of Health is not in
favour of the reduction of VAT in this way, because it thinks there are
more focused ways of delivering these messages. But I can assure the
hon. Gentleman that we are not dismissing these concerns or interests
out of hand. There are some difficulties, and I have explained two or
three of them, in terms of fiscal neutrality and definitions. But I
hope that, with this explanation, the hon. Member for Putney will
withdraw her new clause.
Justine
Greening: I am grateful to the Minister for her comments.
It is helpful to know that the Treasury is actively reviewing this
area. I understand that, back in the Budget of 2006, there was an
announcement by the then Chancellor, now Prime Minister, of a review of
the taxation of non-alcoholic drinks, but it seems to have been lost
over time. It would be helpful to know what the deliberations going on
at the moment—by the sound of it, in the Treasury and Department
of Health—are turning up in terms of new evidence and
assessments. The
whole point of our new clause was to get facts on the table, as my hon.
Friend the Member for Runnymede and Weybridge said, so that we can
understand the trade-offs between these competing policy areas, and
where we might want to put resources and where they might be most
effective in terms of achieving healthy eating. So from my perspective,
this has been a really
helpful debate, and I am grateful for the Minister’s comments. I
beg to ask leave to withdraw the motion and the
clause. Motion
and clause, by leave, withdrawn.
New
Clause
13Report
on impact of Finance Bill on older
people ‘It shall be the duty
of the Treasury to prepare and lay before the House of Commons, at the
time of publication of each Finance Bill, a report on the impact on
individuals aged 60 and over of the measures contained in that Finance
Bill.’.—[Mr.
Hammond.] Brought
up, and read the First
time.
Mr.
Hammond: I beg to move, That the clause be read a Second
time.
The
Chairman: With this it will be convenient to
discuss
New clause
14—Report on impact of Finance Bill on people on low
incomes— ‘It
shall be the duty of the Treasury to prepare and lay before the House
of Commons, at the time of publication of each Finance Bill, a report
on the impact on individuals in the lowest income decile of the
population of the measures contained in that Finance
Bill.’.
Mr.
Hammond: New clause 13 would require the Treasury to lay
before Parliament every year, when the Finance Bill was published, an
assessment of its impact on people aged over 60, and new clause 14
would place a similar requirement in respect of people in the lowest
income decile.
New clauses
or amendments requiring the laying of a report are often simply devices
for holding a debate. In this case, it is entirely substantive to
suggest that it would be convenient for Members of the House of Commons
if the Government were to table reports detailing these issues at the
time that the Finance Bill is published. We have had probably as good a
reminder as one could conceivably devise of the need to understand the
impact of a measure on different groups in our society over the course
of the last six months with the debate on the 10p rate—more of
which in a
moment. Older
people are amongst the most vulnerable citizens in our society and any
Government have a duty to ensure that they are not unfairly treated.
That means, alongside the panoply of positive measures to try to
address the issues that particularly face pensioners, we need to ensure
that none of the general measures that we are introducing—we are
looking particularly at taxation measures introduced in Finance
Acts—have the effect, either inadvertently or otherwise, of
worsening the situation that those people find themselves in.
At the very least, we ought to ensure that Members of
Parliament scrutinising proposed legislation and debating these issues,
do so with their eyes open, so that if they introduce a measure that
may impact adversely on groups such as the over-60s—there may be
occasions when sadly, for fiscal or other reasons, it is necessary to
do so—they do so with their eyes open and in full knowledge and
understanding of the effects and implications of the legislation
that
they are passing. In other words, we should not introduce measures that
have unintended consequences that then have to be unravelled after a
political furore. Older
people, of course, face some very severe pressures at the moment, which
makes the introduction of this new clause, with effect for all future
Finance Bills, particularly pertinent. The soaring price—I might
say, without wishing to resort to hyperbole—of fuel and food,
while it affects all of us, even those who are relatively well-off,
clearly has a devastating and disproportionate effect on those living
on fixed incomes, and a significant proportion of those living on fixed
incomes will be pensioners.
I hope that
the Minister will accept that the purpose of both of these new clauses
is to avoid unforeseen circumstances and to ensure that Parliament,
commentators and the public debate are well informed. As I think she
will be among the first to acknowledge, unforeseen consequences of
measures in Finance Bills can have political as well as economic
impact. The Government would be wise to look at what is being proposed
here and consider whether this would not be a measure that could avoid
future pitfalls from unintended consequences of measures introduced in
Finance Bills.
I must give
credit to the right hon. Member for Birkenhead (Mr. Field), who during
consideration of last year’s Finance Bill tabled a provision
that was a little too restrictive for the taste of the official
Opposition. It would have required the Government to assess the impact
of measures in the Finance Bill on those at the bottom of the income
scale and, as I understand it, it would have prevented such measures
from being introduced unless and until offsetting mitigation measures
were also included. It would have severely restricted the
Treasury’s ability to propose fiscal measures. As I have
acknowledged—I am sure the Financial Secretary will
agree—none of us would choose fiscal measures that
disproportionately burden the poorest and most vulnerable. The Treasury
needs flexibility to deal with the fiscal situation that it is in,
which frankly is not good and, from figures published today, does not
seem to be heading in a positive direction. The right hon.
Gentleman’s proposal was a useful and helpful measure, as it
would have drawn attention to and clearly set out the likely impact of
the measures in the Finance Bill on those most vulnerable
groups.
As
originally published, the Finance Bill contained a measure announced in
the 2007 Budget that would have left 5.3 million households worse
off—the abolition of the 10p tax rate. A significant number of
those households, at least 700,000, would have been people between the
ages of 60 and 64. I say “would have been”, because the
Government have subsequently changed tack and, rather humiliatingly,
introduced a mini-Budget to announce further changes that reduce the
number of people placed at a net disadvantage by the measure. I am sure
that the Government would have preferred not to have needed to do that.
I am sure that Labour MPs—many of whom, to their credit,
identified and vocalised their concerns between the Budget and the
Committee of the whole House—would have preferred the potential
impacts of the measure to have been set out and understood earlier.
They could have made their feelings known discreetly to Ministers, who
would then have understood the scale of the feeling across the House on
those issues and something could have been done earlier with much
less fuss and bother for everyone, especially the Government. I hope
that the Minister is appreciative of my concern to spare the Government
embarrassment wherever possible. Even after
the compensation package, 300,000 60 to 64-year-olds will still be
worse off as a result of a 10p rate cut. An unfortunate fact,
inconvenient to hon. Members on both sides of the Committee, is that
the Government do not routinely provide any distributional impact
information on the measures as part of the Budget process. Although the
new clause talks of publishing such a report not later than the time of
publication of the Finance Bill, we envisage that a distributional
impact analysis could be published at the time of the Budget that
introduced the measure—that is something that I hope will become
practice if the new clauses are accepted.
In practice,
it is left to organisations such as the Institute for Fiscal Studies to
go through the small print and publish an attempt at distributional
analysis, which sometimes the Government decline to endorse. On other
occasions—this year was one of them—the Government
broadly endorsed the analysis of the IFS of the distributional impact
of the measure. The Treasury Committee also takes evidence on issues
including distributional impact and ultimately publishes a report on
the Budget measures which includes such an analysis and its comments
thereon, although that is usually some time after the critical
point. 5.45
pm We
are arguing for transparency. It is crucial that Members of Parliament
have the necessary information to scrutinise legislation properly. The
Financial Secretary will remember, and members of the Committee will
have very firmly in their minds, that no less a person than the Prime
Minister, at the beginning of his term of office, stated quite clearly
his intention to reinforce the role of Parliament in scrutinising the
Executive. If Parliament has an important role in scrutinising the
Executive, it is nowhere more important than in relation to the Finance
Bill, the premier piece of legislation in the Government’s
programme each year. This new clause is designed to reinforce that
scrutiny process and thus to reinforce the Prime Minister’s
desire to give more teeth to Parliament in its scrutiny and oversight
of the working of the
Executive. Pensioners
are currently struggling with higher food and fuel bills. Frankly, most
of them do not see much light at the end of the tunnel. They are
looking for some sign of relief from the Government. At the very least,
they are looking for a recognition that their specific vulnerability
should be taken into account when general revenue raising measures are
introduced in the Finance Bill so that mitigation can be put in place
if that is appropriate, or that the general measures can be tempered in
recognition of the impact that they will have on older
people. The
number of pensioners going bankrupt has more than doubled in the last
five years from just 900 in 2002 to 7,900 in 2007. That looks like more
than doubling to me. It is up nearly tenfold in those five years. That
is partly a result of the complexity of the means-tested pension credit
system. That is not just my analysis, but the analysis in an
independent report on why so many
pensioners miss out on the benefits to which they are entitled,
published by Wilkins Kennedy under the title “Proportion of
Retired Bankrupts Rising” on 27 September 2007. More people
are reaching retirement age in debt. Perhaps that simply reflects the
tendency in recent years for people to treat their homes as a sort of
piggy bank out of which they can draw equity when they find life
getting difficult. Many people have been tempted to do that. Borrowers
in their late 50s and early 60s owe four times as much as they did a
decade ago, according to a study by Barclays and Help the
Aged. This
10p fiasco is not the first time that pensioners have been adversely
affected by measures in a Finance Bill. It is not the first time that
measures that would have an impact on pensioners have gone initially
unnoticed, or at least with their significance unacknowledged. I remind
the Committee that as long ago as the Labour party conference of
October 1996, the now Prime Minister gave a pledge of
“fairness to
the pensioners under Labour.”
The truth is
that various fiscal measures that he has taken over the past 10 years
when he was Chancellor of the Exchequer have adversely affected British
pensioners and reduced security in retirement, often in a way that is
not clear at the time. Sometimes that has been inadvertent, and
sometimes it has been the result of a stealth measure. This
Government’s first welfare reform Minister, the right hon.
Member for Birkenhead, summarised the Government’s record by
saying
that “when
Labour came to office we had one of the strongest pension provisions in
Europe and now probably we have some of the
weakest”. I
want to talk about a matter on which this new clause 13 would have a
specific impact: the decision taken in 1997, and implemented in the
Finance Act 1997, to abolish the tax credit on dividends, costing
occupational pension schemes billions of pounds and undermining the
retirement security of millions of people. That measure, which has cost
pension funds an estimated £5 billion a year since it was
introduced in 1997, has eroded confidence in pension savings and,
according to actuaries, has reduced the capital value of pension funds
by at least £100 billion.
Yet the
truth is that none of us—even those who were looking for the
undeclared consequences of Government announcements and legislative
proposals back in 1997—spotted the significance of the abolition
of dividend credits. Those lobbying for pensioner and pension fund
interests did not make the case loudly at the time. I accept that that
is partly due to the fact that, back in the heady days of 1997, the
concept of stealth taxes was an entirely new one. The convention had
always been that changes in taxes were announced in the Budget and then
enacted in the Finance Bill. At that time, we had not yet got used to
sifting through the small print, looking for the changes that were
unannounced but nevertheless of major significance. The truth is that
even if that measure had been announced later, when we understood the
concept of stealth taxes, it would have been difficult to identify its
significance, and certainly difficult to quantify its significance and
its impact on people aged over 60.
The new
clause would require the Government to bring out into the open the
distributional impacts of measures in the Budget, so that there would
never again
be an opportunity for a Government to sneak in a measure like the
dividend tax credit abolition without explaining and accounting to
Parliament for the impact it would have on this particularly vulnerable
group: people over the age of
60. You
will know, Sir Nicholas, some of the statistics around the situation
affecting pensioners. Five sixths of final salary pension schemes have
closed since 2007, “under our watch”, as the right hon.
Member for Birkenhead put it. Only a third of final salary pension
schemes are still open to new members. You will remember, Sir Nicholas,
the papers released under the Freedom of Information Act 2000, after a
long battle by the Treasury to prevent their release, which showed that
the then Chancellor, the current Prime Minister, was advised in very
precise terms in 1997 of the damage that the abolition of dividend tax
credit would do to pension funds. It is not the case that these were
unidentified consequences.
Clearly, if
new clause 13 had been in effect at the time of the Finance Act
1997—I think it was Finance Act No. 2, since we had just had a
general election—the Government would have had to set out in
very clear black and white terms the impact of this measure on pension
funds and pensioners, particularly poor pensioners. It was very clear,
and the Chancellor was advised very clearly, that the poorest
pensioners would be hit
hardest. We
are trying to get the argument into the public domain in a way that is
conducive to good governance. At the time of the 1997 events, various
things were said. The current Secretary of State for Children, Schools
and Families claimed that the changes were
“the best thing
for the long-term investment of the UK
economy.” However,
Derek Scott, who was an economics adviser to No. 10 at the time,
thought differently. He
said: “I
thought it was a crackers thing to do. The policy came out of the
Treasury and I thought it was a mad thing to do and said so at the
time. The idea that it helps investment by hitting pension funds is
ludicrous.”
So we have these
tensions inside the broader Government machine, but we do not get them
out into the open. We need the facts set out in the open, we need all
the information out there, and we need the distributional impacts fully
spelled out so that we can understand them, discuss them openly and
scrutinise what the Government are
doing. Stephen
Hesford (Wirral, West) (Lab): The hon. Gentleman is making
an entirely bogus case. He knows that the pensions industry did not
suffer because of the reasons he suggests. There were reasons why the
pensions industry did suffer, but they had absolutely nothing to do
with what the then Chancellor, now the Prime Minister, did in the
Finance Act to which he refers. There were a number of reasons why the
pensions industry suffered, and I will ask him to ponder on three
indications.
First,
around 2000, there was the dotcom bust, which caused investments to go
down. That was one part of the story. Secondly, there was a
miscalculation by the actuaries about people’ longevity, so such
pension provision became unsupportable and expensive and therefore
unfashionable. Thirdly, there was a miscalculation
about
pension holidays—contribution holidays—and the catch-up
became too expensive. It was nothing to do with the then
Chancellor. | 
