Finance Bill

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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.
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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 13

Report 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.
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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.
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.
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