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12 May 2009 : Column 746

Mr. Browne: That is an entirely fair point. Parking charges are a good example, which leads on from the point made by my hon. Friend the Member for Montgomeryshire (Lembit Öpik). By and large, parking charges are rounded to a sensible hourly rate. A reduction of 2 per cent. would mean that instead of paying £1.50 an hour, a person would pay—somebody else should do the maths—£1.47 or whatever. People might prefer to pay £1.50 rather than £1.47 or have difficulty in paying the precise amount. Many local authorities would think it easier to stick at £1.50, so in such cases the benefit was not passed on to the consumer.

No doubt opposition parties of all colours in the authority would then criticise the administrating party for not passing on the VAT cut to consumers, even though it would have been administratively burdensome for the authority to do so. The money would be absorbed by the local authority, so I suppose that the Government would argue that the local authority would have more money to spend on other services. However, I am not sure that the money flowed through the system as neatly as the Government would have wished.

Mr. Tobias Ellwood (Bournemouth, East) (Con): The hon. Gentleman and I both have constituencies in the south-west, where the biggest industry is tourism. He mentioned small and medium-sized businesses. There are 200,000 such businesses involved in tourism and I have not found one that has embraced the change that we are discussing. It has actually cost them more—they have had to change their online basket systems and the pricings and so forth. They would relish the opportunity to have the measure thrown out as soon as possible.

Mr. Browne: The hon. Gentleman makes a good point. To follow on from that made by the hon. Member for Mid-Sussex (Mr. Soames), I should say that my experience—other Members’ experiences may be different—is that there are two reactions to the reduction. One is hostility, which the hon. Member for Bournemouth, East (Mr. Ellwood) described; the other is indifference. I have not met anyone who feels zealous enthusiasm for the Government’s policy. Some regard it as making no difference whatever to their business or the assumptions that they make; others regard it as burdensome and troublesome and, if they went to great lengths to accommodate the reduction, are not looking forward to having to put the rate back up again.

Bob Spink (Castle Point) (Ind): Local authorities, of course, could reduce the council tax as a result of having collected more money from parking charges and so on. Does the hon. Gentleman have any idea which tax his party would reduce to balance out the 2.5 per cent. VAT increase that it wants? Alternatively, would it use the additional money to cut borrowing?

Mr. Browne: I do not want to incur Mrs. Heal’s wrath, so I will not extend the debate to local government finance. However, in due course I shall discuss possible alternatives to the VAT cut, because that is very much within the scope of amendment 8.

Mr. Ellwood: Another aspect of the issue, to which the hon. Gentleman may come, is the date itself. The VAT change is unpopular, but most people are enjoying a drink on new year’s eve, and no small or medium-sized
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business, particularly in the tourism industry—pubs and so forth—wants to start changing tills when Big Ben is striking midnight.

Mr. Browne: The hon. Gentleman makes an entirely legitimate point, which I have heard him make in other debates. The Minister needs to engage with it. New year’s eve may well be the worst possible date of the year to pick—365 options, and the Government pick the worst one of the lot. Clearly, there are cost implications in pushing the date backwards— [Interruption.] I accept that the hon. Gentleman was not making a point about cost, but a practical one about businesses that trade beyond midnight into the new year and how they would manage to adjust.

The broader point is that businesses as a whole—and, in some cases, even individuals—have either found the change burdensome or have not noticed it at all. I doubt whether many people have changed their behaviour as a result of the measure. I take the point made repeatedly by the Government—people might have a little more money to spend and not consciously realise that they are changing their behaviour. They may buy one thing at the end of the week that they might not otherwise have bought because the accrual of all the 4ps saved when buying cards and other bits and pieces might make them think, “I might buy one more birthday card because I am suddenly feeling a bit more affluent.” My suspicion, however, is that even at a subconscious level, very few people have acted as the Government would have wished.

Lembit Öpik: Given my hon. Friend’s sage and insightful observations, he may be amazed that at today’s sitting of the Business and Enterprise Committee, it was claimed that the VAT reduction had increased economic activity by £8,000 million to £9,000 million. What is my hon. Friend’s view of that heady claim?

Mr. Browne: It would probably be better to hear the Minister’s view of that claim; it does not accord with my experiences—or, apparently, those of other Members taking part in our deliberations.

Others may wish to dwell at greater length on the impact on business, but I have sought to make that point. My central point about the public finances—the Government’s finances—is the cost of the measure and whether the opportunity cost represents a good decision by the Government. In all our deliberations on the Finance Bill, we have to return to the big elephant in the room: this year, we are running a public sector deficit of £175 billion. That is £480 million every single day, and £20 million every hour; since we started our deliberations this afternoon, close to £100 million has been added to the public debt. The figures are enormous.

There may be some scope for a fiscal stimulus, although, as I have said, it is fairly small. We have to make sure that we get the maximum value from the money being spent. I argue that that money should achieve two objectives. First, it should try to ensure as quickly as possible that the economy starts to grow again; that, after all, is the whole purpose of a fiscal stimulus. Secondly, it would be beneficial if we had something to show for the money afterwards.

It is worth reminding everybody that the cost of the temporary VAT cut—I do not know whether the Government realised that it would be this neat—is
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almost exactly £1 billion a month. Amendment 7 is not within the prescribed boundaries of our deliberations, but I was keen for it to take effect because that would have saved the taxpayer about £4 billion or £5 billion, depending on the precise date of Royal Assent. The clock is ticking. If we are to try to come up with a more effective way to spend the fiscal stimulus, then every day that passes we have roughly £30 million less to play with than we would have done had we made that decision a day earlier.

8 pm

Stewart Hosie: Would the hon. Gentleman like his proposed assessment to include the Treasury’s own forecasts, run through the input-output model, of various options set against the VAT cut, showing how many more jobs might have been saved through direct capital expenditure, and what difference an income tax cut might have made in terms of GDP growth or jobs saved?

Mr. Browne: Yes; the hon. Gentleman is very helpful. Although it is tempting—and, I hope legitimate, Mrs. Heal—to have a wide-ranging debate on VAT, it is also useful to dwell on the amendment. That is precisely the sort of consideration that the review should examine.

What strikes me as extraordinary is that a civil servant asked to come up with a £12 billion or £13 billion tax cut could not have come up with one that had less impact on the public consciousness. If the Government were seeking, albeit with borrowed money, to give away that amount of extra money to the taxpayer, they could have taken roughly 3p off the basic rate of tax for a year. They might not have thought that that was the right way to go, or they might have felt that it did not stimulate the economy in the way that they had intended, but every time people got their payslip at the end of the week or month, they would have noticed the sizeable reduction in tax.

The most problematic aspect of the VAT cut, which it would be interesting to examine in a review, is that it did not have the effect of giving people additional confidence: the mental sense that they had additional money in their pockets. Part of the reason for the Government’s changes was to try to give people a sense that things were not so bad, that there was a bit more money to spend, that they could go out there and spend it, and that that would be a self-fulfilling prophecy in its impact on the economy. I do not think that that has proved to be the case, although others may disagree. If there were a cut in the basic rate of income tax, people might choose to save the money. The Government would say that cutting VAT means that people get the benefits only if they spend money—they were keen to encourage people to spend, and continue to be so. However, psychologically, it did not have the impact that it could have had as regards people feeling that they had more money to spend, even if they did in practice because the 4p’s were accruing here, there and everywhere as they made different purchases.

Mr. Soames: The basis of the hon. Gentleman’s argument, which he is making very powerfully, is whether the VAT cut was or was not a good thing to do. Does he know whether the Government consulted retailers and those who represent them on what the burdens would
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be, and whether retailers, who know much more than the Government about selling things, believed that the VAT cut would make a substantial difference to the Government’s prospects and to theirs?

Mr. Browne: I am not aware of what consultation took place among retailers. I hope that the Minister is more aware of that than me, but from what I have seen there was little or no consultation. The Government felt a need to act swiftly, and perhaps they were right in that analysis. They grasped at the temporary VAT cut from 17.5 to 15 per cent. as being the best way to go—there seemed to be very little evidence for it, and amendment 8 would be a good way of starting to examine whether they made the right decision—and introduced it swiftly as part of an attempt by the Prime Minister, principally, to show that he had a grip on the economic situation. He wanted to show that the situation was bad, but that he was taking the decisive action necessary to get us through the recession as speedily as possible. I do not get the sense that alternatives were considered in as much detail as they could have been, nor that the adverse impacts of the Government’s policy were considered in sufficient detail. No doubt the Minister will enlighten us about that.

I am not sure that the behavioural impact was fully assessed. Some people may behave in a way that the Government had not intended. I suspect that if the date on which the VAT reduction ceased had been brought nearer to today, some people who were motivated to spend differently because of the VAT reduction—for example, to buy a big-ticket item such as a car—would have tried to make such purchases just before the rate went back up to 17.5 per cent. again. Interestingly, the effect of the stimulus might have been brought forward if the reduction had been for a shorter period. Had it not stretched for the full 13-month period, the monthly cost of the reduction might have been a bit higher, but the overall cost might have been lower. That is a theory, but it is the sort of area that such a report could usefully examine.

Stewart Hosie: The hon. Gentleman says that the assessment should be done before 1 April 2010. Does he agree that it could be done very quickly, and that if it included an assessment that showed that direct capital expenditure would protect or preserve tens of thousands more jobs in the remaining period than the VAT cut, that might be something that those of us who believe in fiscal stimulus could yet coalesce around in the teeth of recession and in light of tomorrow’s unemployment figures?

Mr. Browne: The hon. Gentleman makes a good point. I accept that the date in the amendment is arbitrary; I was trying to take account of the typical time scale of such reviews. There is a degree of urgency—very much so—in terms of the economy, and he mentioned unemployment. Of course, the review would be retrospective were it to take place on the date that the amendment envisages, but there would still be some benefit, because we do not know whether the Government may in time seek to use such a device again. It would inform future decisions instead of dealing with the here and now. I take his point that the here and now is an important priority, and we will no doubt focus on that in discussing the clause as a whole.

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The hon. Gentleman takes me neatly on to what the money could alternatively be spent on, which is an entirely relevant consideration. There are, essentially, two schools of thought: that which says that there is no scope for a fiscal stimulus and that which says that there is. My party is of the second school, and while I do not wish to caricature anybody’s arguments, I understand that we are in the same school as the Labour party and the Scottish National party. By and large, Conservative Front Benchers—although we heard a dissenting view a few moments ago—do not believe that there is scope for a fiscal stimulus beyond the automatic stabilisers that one would get at a time when the economy was shrinking. Having said, “The Government’s policy is to have a fiscal stimulus, and after all they are the Government: they are in power and enacting this policy”, we can move beyond that and ask how the money would better be spent. The sum involved is generally estimated to be £12 billion to £13 billion, although the more popular the Government’s policy is, the more effective it is, and the greater the cost.

We should ask whether this is the best way to spend £12 billion or £13 billion, and whether it is doing two things. First, is it increasing demand and getting us through the recession more quickly than if the stimulus had not been put in place and the extra borrowing had not accrued? Secondly, will we have something to show for that large amount of public spending once it is finished? My party drew up a list, a package, when we were envisaging better ways to spend the entire £12 billion or £13 billion. As I said, with every day that passes that money ebbs away, but nevertheless I shall run briefly through some of the matters that we were talking about.

The First Deputy Chairman: Order. I hope that the hon. Gentleman will contain his comments to the amendment that is tabled in his name, rather than the wider package of reforms that he was about to discuss.

Mr. Browne: Thank you, Mrs. Heal, for that very helpful guidance. The point that I was trying to make—I certainly do not wish to make it at excessive length—was that amendment 8 asks the Government to consider the impact of the VAT reduction on

My contention is that the benefits in those three areas and more widely would have been greater had the Government gone down the path of spending the money on a range of programmes. I shall not list those programmes, but they would have been designed to encourage our country towards greater environmental sustainability.

We argued, and continue to argue even though the amount of money that we are arguing about gets smaller every day, that the money could have been spent on, for example, home insulation programmes, buying new rolling stock for trains or electrifying some train lines. That would have provided an opportunity for greater employment. It would have been a stimulus, but once we reached the end of the package, as the Government now envisage doing with the VAT reduction at the end of this calendar year, we would have had a lot of insulated houses, electrified train lines and new rolling stock.

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Instead, I am afraid that we are going to spend £12 billion or £13 billion and have precisely nothing to show for it except, arguably, some small, incremental, hard-to-measure benefits to some organisations. I fear that the review envisaged in amendment 8 would still not get us to the bottom of precisely what those benefits are. That is not £13 billion of public money spent wisely, especially as that money was not available. Borrowing was increased, by this year’s figures, from £162 billion to £175 billion, but we do not have longer-term assets such as I have described to show for it. The Government talk about investment when they really mean spending, but under our plans there genuinely would have been investment as well as spending. They would have stimulated the economy in the short term while providing a longer-term legacy.

For all those reasons, amendment 8 requests a comprehensive review, and the debate gives us an opportunity to consider when the temporary VAT reduction should cease. The Government need to answer the question of the hon. Member for Bournemouth, East (Mr. Ellwood)—it was on a practicality, but an important one—about whether it is wise to finish it at the end of December. The Government also need to address the wider points about whether the end could be brought forward and the revenue savings realised earlier.

I hope that many hon. Members will contribute to the debate and that the Financial Secretary will accept the concerns that have been expressed in all quarters. I hope that he will take on board also the complete lack of enthusiasm of anybody in his party for debating this issue and defending Government policy. Perhaps, in the intelligent way for which he is well known, he will seek to arrive at a solution that is beneficial to the taxpayer and the economy as a whole.

Mr. David Gauke (South-West Hertfordshire) (Con): This is an important debate, and I share the view of the hon. Member for Taunton (Mr. Browne) that it is a pity that there are not more Labour Members here to debate what was, after all, the flagship policy of the pre-Budget report of 2008. Perhaps this subject cannot drag them away from the various plotting enclaves in which they are currently gathered.

Mr. Timms: Can the hon. Gentleman tell us why there is no Conservative amendment on this subject? Given the strength of feeling on the Conservative Benches, I would have thought that there would be some proposals, but there is nothing.

8.15 pm

Mr. Gauke: If the right hon. Gentleman will be a little patient, he will receive the full reason why there is no Conservative amendment, but he will find that there is still a dividing line between us.

Mr. Ellwood: Does my hon. Friend agree that we tried very hard in the debate on the Bill last week to get the Financial Secretary to recognise that this was an unpopular move, and that the best thing that could happen would be for the date of the VAT change to be moved? Does he agree that the response, body language and message that we got back suggested that in absolutely no way were the Government willing to listen? What would be the point of tabling an amendment if that is how we are treated in the Chamber?

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Mr. Gauke: I am grateful to my hon. Friend. I was going to address that point later, and I will come back to it, but given the enthusiasm in all parts of the Committee for me to address it now, I shall do so.

Clause 9 will move the date at which we revert to 17.5 per cent. VAT back from 1 December to 1 January. If the clause does not stand part of the Bill, that date will remain 1 December. I shall elaborate on what that means, and I hope that the concerns that my hon. Friend raises, and the Minister’s concern that there is no Conservative amendment on this point, will be addressed. The Liberal Democrats tabled an amendment to bring the date forward, but it was not selectable, as is customary in these circumstances. However, we have an opportunity to do what we can to deal with the matter as quickly as possible.

I return to my points in a more methodical way. The hon. Member for Taunton was absolutely right to ask his two questions—first, whether in November 2008 we could afford the fiscal stimulus that consisted of the VAT cut; and, secondly, if we could afford a discretionary fiscal stimulus, whether that was the right way to go about it.

It is worth my being precise about where there is a difference between the Government and the Opposition, because there is a tendency to point to dividing lines and caricature our positions, and the differences between us can be exaggerated. First, we recognise that there is a place for automatic stabilisers. We recognise that tax revenues will reduce in the course of a recession and that expenditure will increase on certain things, particularly benefits. We have not argued that our fiscal policy should be such that we do not allow the automatic stabilisers to apply. The difference between the Opposition and the Government is about the discretionary fiscal stimulus, not the automatic stabilisers.

Secondly, let us not exaggerate the significance of fiscal policy in addressing a recession. It is not the sole, nor even the principal, means of addressing a downturn. If I may, I shall quote what the hon. Member for Twickenham (Dr. Cable), who is highly regarded in these matters, said in the debate on 31 March. I did not say that he is rightly highly regarded, but he is highly regarded.

He stated that,

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