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Mr. Speaker: Order. Hon. Members must let the Chief Secretary speak. That is the nice, polite way of doing things, is it not?
Yvette Cooper: Hon. Members need to recognise that the important thing is to provide certainty for businesses so that they can plan. Whatever the date, they will need to make arrangements to comply with the change, and HMRC will continue to work with them to ensure that the arrangements are made smoothly. I repeat, however, that hon. Members continue to oppose a cut in VAT that is making a huge difference across the country, supporting the economy at what would otherwise be a devastating time given what is happening throughout the world. The independent Centre for Economics and Business Research has examined the impact on retail sales, and has said:
“The figures are clear; the VAT cut is working... There has been a clear and immediate impact on retail sales since its introduction.”
The centre estimates that, between December and February, retail sales were £2.1 billion higher than they would otherwise have been.
Liberal Democrat Front Benchers oppose the reduction in VAT because they would have preferred to spend the money differently. I respect that position, although I disagree with it. Of course it is also right to put money into public sector capital projects, and we are doing that as well, but the advantage of the VAT cut was that it was by far the fastest way of putting money into the economy to provide immediate support across the economy. Unfortunately, Conservative Members simply opposed the VAT cut, along with anything else involving additional investment or spending in the middle of a recession—an economic policy that is not just bonkers but dangerous.
Dr. Nick Palmer (Broxtowe) (Lab): Does my right hon. Friend agree that my neighbour, the right hon. and learned Member for Rushcliffe (Mr. Clarke), was right on this point, although he was shut up by his colleagues? More broadly, the stability of high street sales has surprised many people during the current recession, and it is depressing to observe the eagerness with which Conservative Members have tried to talk down the economy throughout the crisis.
Yvette Cooper: My hon. Friend is right. The VAT cut has put substantial additional investment into the economy at a time when it needs that extra help, and our approach has been supported by countries all over the world.
Peter Luff (Mid-Worcestershire) (Con) rose—
Yvette Cooper: I will give way to the hon. Gentleman, but then I must move on.
Peter Luff: I am grateful to the Chief Secretary. I hope to explain in detail later—if I am lucky enough to catch the eye of the occupant of the Chair—why I oppose in principle the Government’s policy on VAT reductions, but may I first press the Chief Secretary about the date? I understand that the retail industry is very worried about the change being made in the middle of the Christmas sales period. Has the Chief Secretary received representations, and why is she sticking so firmly to 31 December?
Yvette Cooper: We have had discussions with representatives of the retail industry and others about the timing of the change. The main thing they said they needed was certainty about the date so that they could plan, which is why we have set a date. Extending the VAT reduction until, say, the end of January to move it outside the sales period would have cost substantially more. We made a judgment, and the Chancellor made a judgment, about what time would be right, bearing in mind the scale and timing of the fiscal stimulus. I repeat that the change in the VAT rate is part of the fiscal stimulus, which we believe is the right measure to take and which evidence shows is helping the economy through a difficult time, but which Conservative Members have continually opposed.
Mr. Greg Hands (Hammersmith and Fulham) (Con) rose—
Yvette Cooper: I will give way to the hon. Gentleman if he will explain why he wants to take billions of pounds out of the economy at a time when that money is making a real difference to consumers and businesses across the country.
Mr. Hands: The right hon. Lady claimed that her VAT cut was supported throughout the world. Can she give at least one example? Can she name any other country that has copied it?
Yvette Cooper: I said that the fiscal stimulus was supported by countries throughout the world. Let us be clear which countries support a fiscal stimulus: America, Japan, France, Germany, Italy, and all the countries in the G20 are supporting their economies with different kinds of investment.
The Conservative party is completely isolated, because it is the only major party not only in Europe but in the entire world that is calling for cuts in spending in the middle of a recession, and cuts in investment, to take money out of the economy. That is absolute, utter madness. It is completely irresponsible in terms of the future, and in terms of people who currently have jobs. The measures that we are taking are supporting half a million jobs: half a million jobs that could be lost as a result of the approach the Conservatives have taken. They do not care about unemployment, and they do not care about protecting and supporting people’s jobs, because they want to take billions of pounds out of the economy at a time when it is vulnerable.
Mr. Andrew Love (Edmonton) (Lab/Co-op): Does my right hon. Friend see a contradiction in the fact that Conservative Front Benchers oppose the reduction in VAT yet Conservative Back Benchers are pleading for it to be extended?
Yvette Cooper: My hon. Friend is right. In fact, the contradictions between Conservative Back Benchers and Front Benchers on this issue, and even between its Front Benchers, are legion.
Let me explain how other clauses are providing support as part of the fiscal stimulus. Clause 24 doubles tax breaks for business investment. It increases the rate of capital allowance relief to 40 per cent. for one year from April, allowing all firms investing over £50,000 in the current financial year to benefit from a higher rate of tax relief on investment. It is a boost for business but it
is opposed by the Conservatives, although, to be fair to the shadow shadow Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke)—who was mentioned earlier by my hon. Friend the Member for Broxtowe (Dr. Palmer)—he has said:
“The increase in capital allowances is worth trying. I approve of that.”—[ Official Report, 27 April 2009; Vol. 491, c. 612.]
The problem is that the shadow Chancellor does not approve of the money being provided to pay for it. That investment is needed to support the economy now.
For basic rate taxpayers, clause 3 means an increase in the income tax personal allowance, making them £145 better off than they were in April last year. It provides extra help for ordinary families now, which is opposed by the Conservatives. Clause 23 extends from one to three years tax breaks for business through the loss carry-back rules. It will help up to 75,000 businesses that made a loss last year, and it is part of the fiscal stimulus. It provides real help for businesses now, which is opposed by the Conservatives.
Whether it is the £5 billion of extra help for the unemployed, the £600 million of extra help enabling teenagers to stay at school, or the £3 billion for public sector capital programmes, time and again the Conservatives oppose the vital investment and support that our economy urgently needs so that we can emerge from the recession sooner and stronger.
Lembit Öpik (Montgomeryshire) (LD): I am very sympathetic to the Chief Secretary’s efforts to provide tax reliefs for businesses, but she will know that, notwithstanding the support that the Government are trying to give, the banks’ reduction in overdraft facilities tends to negate some of the benefits in the Bill. Can she do anything to force the banks to provide facilities that companies desperately need, without which many of her proposals will be compromised to some extent?
Yvette Cooper: The hon. Gentleman makes an extremely important point. He is right that this started with the global credit crunch and the restrictions on credit for companies across the country. As a result of the additional support we have given, particularly to the Royal Bank of Scotland and the Lloyds group, clear lending agreements are now in place, under which lending must be substantially increased compared with last year. We are monitoring those lending agreements very closely. We are also working with other lenders across the country, because lending by foreign banks has dropped by more than £100 billion since the credit crunch began. The issue clearly goes much wider than the major banks that I have just mentioned.
The hon. Gentleman might also be interested to know that the Department for Business, Enterprise and Regulatory Reform is holding regional engagement meetings and events, bringing together senior regional banking executives and regional businesses to discuss how lending operates locally and to try to improve that.
Mr. Philip Hammond (Runnymede and Weybridge) (Con):
The right hon. Lady acknowledges that the problem is not only the big banks in the UK, but other banks, particularly foreign banks, withdrawing from the marketplace. Will she put it on the record that the Government recognise the important role that non-bank
lenders used to play, particularly in the small and medium-sized enterprises credit market? They are now almost totally absent from the market, yet they seem to have been excluded from all the packages the Government have put in place. Does she recognise the importance of getting non-bank lenders back into the SME market?
Yvette Cooper: The hon. Gentleman is right that credit has been constrained across the market. Some intermediary lenders have found it difficult to get finance and therefore to get involved in lending. We think it is important to support lending across the board within a well-regulated framework, which is why we have set out major lending agreements. We are working across the board. The lending panels approach, chaired by the Chancellor and Business Secretary, is looking at lending not simply by the major banks, but at lending institutions more broadly.
Harry Cohen (Leyton and Wanstead) (Lab): Does my right hon. Friend think that a further inheritance tax cut for multi-millionaires would be a useful financial stimulus in this time of recession?
Yvette Cooper: No, I do not; funnily enough, I do not think that that would be a useful way to spend money in the current circumstances—and nor, frankly, do I think it would be remotely fair.
We have set out a series of measures that help the economy now. The Opposition claim that we cannot afford to implement them, but the truth is we cannot afford not to. The best and fastest way to bring borrowing back down is to support the economy and promote a return to growth. That is why every one of our major competitors is also increasing borrowing to support their economy, even though most of them have significantly higher levels of debt than us. They agree with us that it is right to support the economy in the short run because it will cost us more if we do not.
Rob Marris (Wolverhampton, South-West) (Lab): May I remind my right hon. Friend that Canada recently cut the goods and services tax—its equivalent of VAT—and that it also introduced a Budget in January this year with the equivalent of 3.2 per cent. of GDP in fiscal stimulus? The province of Ontario is lowering sales taxes, and several other provinces across Canada are also considering lowering them—there is a provincial sales tax as well as a federal one. Canada is a G7 country that is engaging in fiscal stimulus, and it has a Conservative Government.
Yvette Cooper: My hon. Friend is right that that is, indeed, an example of a Conservative Government who are pursuing ways of supporting their economy. It is also a sign of the widespread consensus in favour of such measures that exists around the world; there is a recognition that countries need to take action to help people who are losing their jobs and who are afraid of losing their homes, instead of turning their backs on them, as the UK Conservative party did time and again in recessions past.
Once the economy is growing again, we will need to make sure that borrowing comes back down. Economic growth itself will help bring borrowing down, but we need to go further, because, for example, tax revenue from the City has been heavily hit by the credit crunch and we do not expect it to return swiftly.
The Bill also provides further measures to help bring borrowing back down once the economy is growing. Weirdly, for all their talk of fiscal rectitude, the Conservatives seem to oppose these measures as well. Clause 6 implements a new additional rate of income tax from 2010-11 of 50 per cent. for those with incomes above £150,000 per year, and clause 4 legislates for a gradual reduction in the personal allowance for those with incomes above £100,000 until that is completely removed. We think that it is fairest for those on the highest incomes to contribute more because over the past 10 years their incomes have increased by an average of £5,000 a year, compared with £600 a year for the average taxpayer.
Mr. Gregory Campbell (East Londonderry) (DUP): The right hon. Lady is outlining opportunities in respect of the upper end of the income scale. Will she not also outline the opportunity, which the Government appear to have missed, to increase substantially personal allowances at the other end of the income scale so that the incomes of those who earn, for example, £10,000 or £12,000 a year are tax free?
Yvette Cooper: We are, rightly, increasing the tax allowance. That means that individuals will get an extra £145 compared with this time last year. We have also significantly increased tax credits over the years to provide additional support not only for those with children, but for those who are in work but on low incomes. That is the right thing to do. It is right to support those on lower incomes as well, as part of fiscal consolidation, to ensure that there are fair measures, which mean that those on the highest incomes have to pay more.
Mr. Jeremy Browne (Taunton) (LD): With the tapered withdrawal of the personal allowance, and if national insurance is included in the calculations, higher earners will face a marginal income tax rate of 61 per cent. Philosophically, what is the highest level of marginal income tax that the right hon. Lady would contemplate?
Yvette Cooper: We have made a judgment about what the right measures are in this case. As the hon. Gentleman knows, there is an issue to do with introducing changes in personal tax allowances. We have introduced a taper so that they are removed gradually in order to avoid too high a rate of marginal tax. In the end, however, any tax issue has to be decided on the basis of balancing the need to raise appropriate amounts of revenue with the need for a fair tax system that supports employment and other things that we believe are important in the economy. We have made those judgments.
Clause 71 prevents forestalling while we consult on the details of reducing pensions tax relief for those on more than £150,000. We continue to support tax relief.
Ms Sally Keeble (Northampton, North) (Lab): My right hon. Friend has talked about people on high incomes. Will she reconfirm the Government’s commitment to halving child poverty by 2010-11, and say how they will achieve that?
Yvette Cooper:
My hon. Friend makes an important point. We are continuing to make progress towards the 2010 target, and also towards the 2020 target, which we propose to legislate for and therefore embed in law, to support both the long-term commitment and the short-term
measures. My hon. Friend will know that some measures announced in last year’s Budget that have been implemented this year also increase significantly child tax credit and lift children out of poverty. This year, as well as a limited increase in child tax credit, the particularly important issue is to ensure that parents can get back to work as rapidly as possible. We know that the big increase in child poverty in the 1980s was strongly linked to parents losing their jobs, and often to people never getting a job in the first place and then becoming parents having become long-term unemployed. That played a major part in that very substantial increase in child poverty. For those reasons, it is right to invest to help parents get back into work. The impact of the current recession on child poverty is uncertain. As my right hon. Friend the Financial Secretary has made clear, that makes it more difficult to make progress towards the 2010 target, but we are determined to continue to keep making progress and to work towards it even through these more difficult times.
Mr. Graham Stuart (Beverley and Holderness) (Con): Merely making progress towards a target for next year is simply not good enough. It is time that the right hon. Lady came clean with the British people. The promise was made to halve child poverty by 2010. She should tell the House and the people of this country now: is that target going to be met?
Yvette Cooper: What a ridiculous question; the hon. Gentleman does not believe in the target in the first place. How dare he come here to start making pompous remarks about whether the target is going to be met and whether we are making commitments towards it. We are determined to keep making progress towards it, because we think it is right to keep tackling child poverty, whereas his party doubled and trebled the rate of child poverty in this country because it was not prepared to take the action needed to support those who needed help to stay in work and help with their incomes. His party is still committed to making cuts in, and undermining, the tax credits system, which has been so important in helping children out of poverty.
Yvette Cooper: I shall give way to the hon. Gentleman if he will tell me whether he is prepared to commit to a target of halving child poverty by 2010 and of ending it altogether by 2020—let him tell us whether he supports that target.
Mr. Hands: The Chief Secretary may want us to meet a target by 2010, but she can do that only by calling a general election, in order to allow us to have a change of Government. How does she square what she is saying about child poverty with what the Treasury Committee has said in the report that it published today? It said:
“We are concerned by the lack of any substantial measure to combat child poverty in both the Pre-Budget Report 2008 and Budget 2009. On current indicators the Government will fail to meet its 2010—11 target by a significant margin.”
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