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I am perfectly happy with the balance that has been proposed in the Budget by the Chancellor of the Exchequer, raising VAT to 20% as part of a series of checks and balances in other areas. For example, he is raising the rate of income tax, taking almost 1 million people out of income tax. He is bringing in the triple lock for pensioners and protection for child tax credits, as well as ensuring that the lowest paid in society will
not be subjected to a pay freeze. These are all parts of that series of checks and balances. It would be ridiculous to say that we should add another 5% on top of that just because we can. That was not what the Budget was about; it was about trying to tackle the deficit.
Andrew George: My hon. Friend talks about balance in the Budget. When he talked about the VAT rates in the basket of other European nations, I do not think that he was suggesting that this should be about pursuing the lowest, or even the highest, common denominator. He will have heard about the Financial Secretary's statement to the British Bankers Association last night on having further levies on banks. If that were possible and if it yielded sufficient income to the Treasury, would my hon. Friend agree that the Treasury could introduce a lower rate of VAT than is currently proposed?
Alec Shelbrooke: A point made clearly in the debate by a great many people is that each time a Budget comes to the House, the taxation system can be looked at and changed. This Budget tackles today's problems: if deficits fall, revenues are there and the balance comes in, we can look to changing that approach. Looking back into the mists of time, people forget that over the 18 years of the last Conservative Government, taxation was reduced overall, but in the early part, in the late 1970s and early 1980s, taxation had to rise to tackle the deficit. As time moved on and circumstances allowed, overall taxation on people was reduced. The hon. Gentleman makes a sensible point, but we would need to consider matters as each Budget came forward. This is the first Budget of a five-year Parliament, and it set out to tackle a specific issue.
I did some research on this matter, and the Library told me that VAT is applied to only 50% of consumer goods that are bought by the public, so the VAT rise is far less regressive than a rise in income tax, for example-[Hon. Members: "What!"] Absolutely. People have no choice but to pay their taxes, whereas they can make choices about what they pay VAT on. We come back to the question of which pensioners we are talking about. Are we talking about the pensioners who go out and buy cars or those who go out and buy the food on which VAT is not charged?
Charlie Elphicke: Does my hon. Friend recall how the fuel duty was thrust up as a stealth tax/poll tax on wheels? We all remember that and all the other stealth taxes from previous Labour Governments. Did they say that they were regressive at that time?
Alec Shelbrooke: Absolutely; I agree entirely with my hon. Friend. When the previous Government lowered VAT to 15%, the then Chancellor added 2p to fuel duty to compensate for the 2.5% reduction, but he did not take that 2p back off when he put VAT back up to 17.5%, thereby hitting everybody and, as was pointed out earlier, the goods in shops.
Mr John Redwood (Wokingham) (Con): Has my hon. Friend heard any explanation from Opposition Members as to why raising VAT from 15% to 17.5% was a brilliant policy, but raising it from 17.5% to 20% is a disastrous policy? I do not quite understand the distinction they are making.
Alec Shelbrooke: My right hon. Friend makes a very important point that I tried to make earlier. It is all very well for the hon. Member for Caerphilly to ask why the VAT rise is not different for different areas-perhaps less for the construction industry-but when it went from 15% to 17.5%, it was a blanket policy that hit everywhere. It is important to ask why that rise was acceptable but this rise is not.
To conclude, we have to bear two things in mind when we consider the amendments. The VAT rise is regrettable. Nobody in the House particularly wanted taxation to rise-that is not why we came into politics, with the exception of Labour Members who seemed to raise it year on year regardless-but the purpose of the Budget is to reduce the overall deficit and to bring security to the economy, to people's jobs and to people's everyday living allowances by keeping interest rates low. Some of the amendments might have value on their own, but, looking at the bigger picture, I do not believe that they would add value or do anything to reduce the deficit that the country now faces.
Dr McCrea: Thank you very much. All the facts about VAT were known by the parties before the election a few weeks ago, but the Lib Dems were not convinced of the need to increase VAT then. What does the hon. Gentleman believe changed his colleagues' minds so quickly?
Alec Shelbrooke: As I am a Conservative Member of Parliament, not a Liberal Democrat, I would find it very hard to comment on that. I am sure that they quickly realised, having finally seen the books, the dire state of the economic situation.
I rise to support amendments 25 and 43. The impact that the VAT increases in the Bill will have on the most vulnerable in our society-those who are least responsible for the global financial crisis-has been ignored and avoided by the Government, and I wholeheartedly agree that there should be a full analysis of and subsequent report on the extent to which the increase will affect low-income households in particular.
The Government's plans to raise VAT from 17.5% to 20% are highly regressive and entirely unfair. We know that the poorest fifth of Britons pay twice as much of their disposable income in VAT-at 12.1%-as the richest, who pay just 5.9%. Independent estimates from the Institute for Fiscal Studies show that because of this Budget, by 2014-15, the incomes of the bottom 10% of the population will fall by 2.6%, which is equivalent to
£5 a week. Given that those in the bottom 10% of income distribution earn on average £190 a week and already struggle to make ends meet, that £5 a week reduction in their incomes will inevitably hit families and pensioners, plunging more of them into poverty. In contrast, those who are fortunate enough to be in the top 10% of income distribution will experience a mere 0.7% fall in their weekly incomes. As their average income is about £1,600 a week, I suspect that a reduction of £11 will be somewhat more manageable to them than the reduction in weekly income will be to those in the poorest decile of income distribution.
I know that I need not spell all this out to the Government, because just a year ago, the Prime Minister said that VAT changes would hit "the poorest hardest", and it is no secret that the Deputy Prime Minister is well aware of just how regressive VAT changes can be. A few months ago, he described what the Government are planning now as a "VAT bombshell". The Government had a choice about how to reduce the Budget deficit and they chose a package of measures that included the VAT rise, which will make it even harder for low-income families to keep their heads above water.
Let me remind the Government that they did have a choice. There is another way of achieving a reduction in the Budget deficit without threatening economic growth and without the unfairness of the most vulnerable in society being hit the hardest. In March, the then Chancellor of the Exchequer introduced a Budget that included £19 billion-worth of tax increases and £38 billion-worth of spending cuts. With those tax increases, those in the bottom 10% of income distribution experienced not the 2.6% reduction in their incomes that will be the effect of this Government's Budget, but a 0% reduction. In contrast, those in the top 10% experienced not a 0.7% reduction in their incomes, as they will under this Budget, but a 6.8% reduction. Instead of following the choices taken by the previous Labour Government, this Government have chosen measures that will hit the poorest in society the hardest.
Mr Redwood: Does the hon. Lady not understand that the Government have adopted practically all the proposals of the outgoing Government? The Red Book makes it very clear that the rich will be hit much harder, both as a proportion and in cash terms, than those on low incomes. She has to look at both Budgets together, because they are now both the Budgets of the coalition Government.
Rachel Reeves: I think it is reasonable to look at them separately; one was introduced by a Labour Chancellor and the other by a Conservative Chancellor, and the difference between them is stark, as I hope other hon. Members will agree.
Helen Goodman (Bishop Auckland) (Lab): Is my hon. Friend aware that the distribution figures published in the Red Book do not include housing benefit? The latest information we have is that a million people are going to lose £500 a year in housing benefit. They are not the richest people; they are the poorest people.
Rachel Reeves: My hon. Friend is correct. In addition, the reductions in spending are not included in the Red Book analysis, and they will hit people in poorer, low-income families more than those in the top income decile.
I do not dispute the fact that tax increases and spending cuts were needed in this Parliament, but I know that the impact on the poorest in society could and should have been lessened. We need the amendment so that we can fully understand the extent of the impact. The Red Book shows exactly where the pain and the priority rests. Benefit cuts will reduce the income of the poor and vulnerable by £11 billion. The regressive VAT increase will cost families and pensioners £13 billion. The bank levy will yield £2.4 billion. How ironic that the Government are making the banks and those at the top of the financial institutions, which are largely responsible for the recession, pay just a fraction of what those at the bottom are being made to pay.
Rachel Reeves: The hon. Gentleman might also be aware that the Labour Government introduced a tax on bankers' bonuses, which brought in more than the bank levy will bring in. So while I accept what the hon. Gentleman says, Labour intended to tax the banks more than the hon. Gentleman's Government propose to do.
"On our estimates, the corporation tax cut should neatly offset the levy over time. Put another way, net net the Treasury appears to have cut corporation taxes for UK industry, but not for the banks. Moreover, hedge funds and other financial institutions will not be even covered by the banking levy so they can go about their business as they did before paying no more tax under this Government."
My constituents are being asked to make sacrifices that they can ill afford, most especially through the increase in VAT, well beyond the sacrifices that those at the top are being asked to make. I therefore fully support the amendment and ask that the Government undertake a full analysis of the impact and extent that this regressive, unfair and unjust VAT rise will have on those groups who can least afford to pay and least deserve a tax hike.
Jon Trickett (Hemsworth) (Lab):
It has been an interesting debate and many of the points that I wanted to make have already been addressed. The hon. Member for Elmet and Rothwell (Alec Shelbrooke) made much
of the fact that we should judge the VAT rise as part of a package. It is a package that puts money into the pockets of the rich, so it does not surprise me that a Conservative Member should welcome it. He said that income tax was regressive whereas VAT was not. He ought to have consulted the words of his leader, now Prime Minister, who, on 8 May, said of VAT:
"it's very regressive, it hits the poorest the hardest ...VAT is a more regressive tax than income tax or council tax."
It is unfortunate that the spokesman for the Liberal Democrat party is not here. This is an interesting innovation. We have spokespersons for the Government-Ministers and so on-and spokespersons for the Liberal Democrat party, who made a case for the Government's decision to increase VAT. I wonder which Liberal Democrat party they were speaking for-certainly not the party in the country.
A poll the other day-I do not know whether other hon. Members saw it-showed that the overwhelming majority of Liberal Democrat party members did not support the increase in VAT. It is interesting to note that the hon. Member for Bermondsey and Old Southwark (Simon Hughes), the deputy leader of the Liberal Democrats, is not in his place. That may be to do with the fact that he has a different view, probably the view of the Liberal Democrat party rather than that of the Government. He said in June:
"I hope we don't have a VAT increase because it is the most regressive form of tax, it penalises the poor at the same rate as the rich."
The Deputy Prime Minister said in April, just before the election, that VAT "is a regressive tax". The Leader of the Welsh Liberal Democrats, the hon. Member for Brecon and Radnorshire (Roger Williams), will not support any increase in VAT because it is a "very regressive tax".
The two parties went into the election saying that there were no plans to increase VAT. The Chancellor, then the shadow Chancellor, said in April this year-not so long ago-that the Conservative tax plans were
"already in place, the plans do not include an increase in VAT."
"We have no plans to increase VAT."?
Jon Trickett: We may be quoting the same article. It was not that the shadow Chancellor, as he was then, had said, "Well, I'm not going to comment prior to the election on whether we need to increase VAT or not." He said that the Conservative plans did not require an increase in VAT.
The Liberal Democrats were totally opposed to an increase in VAT and, as far as I can see, the party retains a policy to this day of opposition to it, but the Conservative party has form. I do not know whether everyone in the House has the same length of memory as me, but if we go back to the time before the 1979 election-I was not in the House then, but I was interested in politics-it turns out that the Tories, if they won the election, would
inherit a VAT rate of 8%. A document has now been leaked to the press-it is printed in The Independent -that arose from a secret meeting at Sir Geoffrey Howe's home in Lambeth, 12 months before the 1979 election. The document, which was numbered-only about six people had a copy-clearly agreed that the Tories would double VAT from 8 to 15%. Yet for the whole of the period up to that election the Tories denied that they had plans to increase VAT, let alone to double it.
So the Tories have form. They clearly had plans to increase VAT before the last election, just as they did in 1979. All the humbug about the Labour Government planning surreptitiously to raise VAT is precisely that-it is humbug. Labour has never increased VAT; the Tories always increase it. They took it from 8% to where it will be-20%. That is the truth of it, and they have hidden the truth from the public.
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): Does my hon. Friend recall that when the Tories doubled VAT in the long distant past some members of the Tory party had the guts to vote against the decision? Does he agree that if the Liberal Democrats had the guts to do so and they were thinking of the poorest in our society, they would vote with our side tonight?
Jon Trickett: My hon. Friend makes a telling point. I shall come back to the Liberal Democrats and the Secretary of State for Business, Innovation and Skills. I am sorry that he is not in his place. It would be interesting to hear him defend what he said. It was put to him by Andrew Marr on the BBC, "How is it that your party fought the election opposed to VAT and now you are in a coalition which is increasing VAT?" It is something that the Tories always do because they want to take money from the poor to give to the rich, which is what VAT effectively does, as we will see. He was asked if he was embarrassed by his party's election posters. We have seen the poster this evening in the House. As reported in the Daily Mail, the Secretary of State responded:
"We were only trying to score a point against the Conservatives, if you like. Okay, well that was in the election. We have now moved past the election."
I know, Mr Hancock, that you will tell me that it is unparliamentary for a Member to suggest that another Member has deceived the House, yet the Secretary of State was quite happy to say that he had deceived the public. I do not know whether it is parliamentary language for me to say it, but he himself said that he deceived the public as part of the game. I do not regard politics or elections as a game. I believe you should do as you say, and say as you do. That is how I was brought up in Yorkshire. I thought the Lib Dems aspired to the values of progressive politics. The saintly Vince-as he was then being called-could have said that circumstances had changed, but for him to say that it was perfectly okay to practise a deception on the electorate in the run-up to the election and then to reverse his position afterwards is hardly saintly, to say the least. I am sure that is something that can be said in a parliamentary context.
Steve Rotheram (Liverpool, Walton) (Lab): Does my hon. Friend agree that the people least able to afford VAT increases, such as people in my constituency, will be disproportionately affected by the proposals?
Jon Trickett: Of course, and I shall come to that point. During my long sojourn on the Back Bench this afternoon, I have had several visits from my hon. Friend the Member for Leeds East (Mr Mudie), who is watching me carefully, so I shall try to be as brief as I can.
Several Lib Dem coalition partners made the case that it was now possible to reverse their position. It was said that the package as a whole was fair. It was said that the measures would cut the deficit and that the private sector should be allowed to breathe and grow. Each of those arguments is incorrect.
Andrew George: With his characteristic Yorkshire approach, the hon. Gentleman says that politicians should do as they say and say as they do. On that basis, will he be encouraging the shadow Chancellor to be honest with the House, and with him, and say that he made proposals to raise VAT to 18% or 19%, not just once but twice? That was his favoured remedy for the difficulties the country faced over the last year.
Jon Trickett: I shall answer that point specifically because I believe in being honest. For the last two years I worked in No. 10 and I can say that all kinds of options were reviewed, but at the end of the day the Government took the collective view that it would not be right to raise VAT. That was the decision they made. The then Chancellor said in the House, when he was making last year's pre-Budget report, that he had looked at the VAT option and rejected it. I remind the House that no Labour Government have ever increased VAT. We stand on our record. The reason was given by my hon. Friend the Member for Liverpool, Walton (Steve Rotheram), who pointed out how regressive VAT is.
Clive Efford (Eltham) (Lab): In answer to the Liberal Democrats, it is not what Governments consider but what they do and what they vote for that counts. The increase in VAT will hurt the poorest in our communities. Furthermore, to return to my hon. Friend's point about the Secretary of State for Business, Innovation and Skills, when the right hon. Gentleman told Andrew Marr that he was making a political point, the corollary is that he knew he was saying something untrue when he opposed the VAT increase during the election.
Jon Trickett: I follow my hon. Friend quite a lot of the way, but we have to be careful about suggesting that the Secretary of State knew something was untrue. However, he appeared to say in that interview that he had misled the electorate and that it was perfectly okay for the Lib Dems to do so because after the election a new world would be entered into.
As has been mentioned several times, the Library confirms how regressive-that is, unfair-VAT is. How can the Secretary of State argue in this place and elsewhere that he decided to vote for the Budget as a package because it introduced fairness when the House of Commons Library shows that all serious economists accept that VAT is a regressive tax? It falls twice as heavily on the poorest deciles as on the richest. I wanted to speak briefly about the situation for students, but given the time I simply note the fact that students and others on fixed incomes, such as pensioners, will suffer greatly as a result of the VAT increases they will face.
I have three further points. First, every increase in VAT produces an increase in inflation. If there is to be a proper impact assessment, we must look at the effect of VAT on inflation. Most economists agree that inflation will rise by about 2% as a result of the VAT rise. If the Government increase inflation by 2%, even if there was no other inflation in the economy, they will be in breach of Monetary Policy Committee guidelines. However, we know that there is already inflation in the economy.
An increase in VAT, with the corollary that inflation will rise well above 2%, will lead to interest rate rises, which will begin to squeeze away any recovery in the economy that we all hope is coming. The British Retail Consortium said that there will be job losses, company bankruptcies and unemployment as a direct result of the inflation caused by the VAT rise. Moreover, the fact that demand of up to £13.5 billion will be taken out of the economy as a consequence of the VAT rises will produce further unemployment problems. If the level of aggregate demand is reduced there will inevitably be unemployment. Most economists predict that between 180,000 and 220,000 jobs will probably be lost as a consequence of the VAT rise and the reduction of demand in the economy.
Finally, this VAT rise is wholly unnecessary. It does not contribute in any way to the reduction of the deficit. As we know, the VAT hike will take £13.45 billion by its final year, 2014-15. If the measure was being used to take money out of the economy to help the deficit, one could understand it, but the same Budget hands out money in tax cuts as follows: there will be reductions in corporation tax and in small business profits tax, an increase in the employers' national insurance contribution threshold, increases in personal allowances for income tax, adjustments for basic rate and upper earnings limits and a council tax freeze. All those tax give-aways add up to £12.37 billion-almost the same amount as will be raised through the VAT rise. The truth is that the measure is not in any way about reducing the deficit; it is about tax give-aways to the Tories' friends-the richer people in our society. The VAT rise is exposed for what it is: a regressive tax, taking money from the whole economy to bolster the Tories' friends in business and the 22 millionaires who sit around the Cabinet table. No doubt many people on the wealthier side of the divide in this country are rubbing their hands in glee.
Owen Smith (Pontypridd) (Lab): My right hon. Friend the shadow Chief Secretary to the Treasury said at the start of the debate that clause 3 goes right to the heart of the Budget, and I entirely agree. It is also, effectively, a signature measure from this Tory Government, inasmuch as it exemplifies their ability to break the promises they made before the election and is pretty heartless in its targeting, through its regressive measures, of the poorest and the most vulnerable in our society-and all without any sort of mandate, given that they did not put the measure before the people of the country during the election.
Amendment 25, which is in my name, calls for an impact assessment in respect of several key commercial and other sectors of society that will be disproportionately
hit by the VAT increase. I do not intend to talk about all six areas, partly because my hon. Friend the Member for Leeds West (Rachel Reeves) spoke so eloquently about the most important of those sectors-the poorest, the most vulnerable and the people on low incomes in our society. They are the people who will be hardest hit by the increase in VAT, and they are the people who matter most.
I want to address the specific issue in respect of the NHS. Quite often it is thought that the NHS is immune from VAT rises because it can recover VAT on many items, but I think I can show that the NHS-one of those areas that are hugely important to the most vulnerable people in our society and that has a fragile budget-will be hit by the VAT rise. One of the Prime Minister's promises before the election, in addition to promising not to put up VAT-a broken promise-was that he would cut the deficit, not the NHS. In reality, the VAT rise, which will impact on the NHS, is a real-terms, de facto cut in the budgets of the NHS.
Crucially, although the NHS can reclaim VAT in some areas of spending such as direct medical services and what are called contracted-out services, which are dealt with under the contracted-out services provision, not all areas are subject to the contracted-out services provision. The King's Fund calculates that the VAT rise will cost the NHS £250 million to £300 million per annum, and, more specifically, in answer to a parliamentary question tabled at the Scottish Parliament, we heard from Nicola Sturgeon, the Minister responsible for the NHS, that she anticipated the VAT rise costing £25 million per annum, which is clearly in line with the £250 million to £300 million that we can anticipate for the UK as a whole.
That estimate of extra cost is predicated on the fact that the NHS has to pay VAT on purchasing, for example, a new MRI scanner, if it is for clinical purposes-that is, unless it is designed specifically for research purposes. A fully equipped ambulance now costs an NHS trust about £225,000, to which the VAT increase will add £6,000. A CT body scanner, which costs £700,000, will cost £17,500 more. Locum doctors, who are widely used in the NHS, are another service on which the NHS cannot reclaim the VAT. So each NHS trust in the UK will have to pay an additional £75,000-about £3 million across the NHS-for the use of locum services.
Why does that matter? It matters, as I said, because it is a genuine increase in costs for the NHS and it is not accounted for in the current payment to the NHS. Government also often respond to this line of inquiry-
Owen Smith: We have heard this argument a lot today and, yes, VAT, having gone down to 15% as part of the fiscal stimulus, did go back up to the level at which it had sat-17.5%. However, many Labour Members have made it very clear indeed that VAT was not put up-apart from when it returned to a pre-set level having gone down-under any previous Labour Government, where a successive Tory Government, on assuming office, put up VAT. It is the Tories' stock in trade. It is what we expect, and it is what we got.
Thomas Docherty (Dunfermline and West Fife) (Lab): Perhaps my hon. Friend is not aware that the current Prime Minister was a special adviser to the Tory Government that last put up VAT. Does he agree that people such as the Prime Minister revel in using VAT as a way of punishing front-line services like the health service?
VAT is a deeply regressive tax whose impact on the most vulnerable in our society will be seen only when the comprehensive spending review is produced in the autumn. VAT will bite on NHS services in constituencies such as mine of Pontypridd, and right across this country, and we should oppose that wholeheartedly.
In an intervention I referred to the Treasury document "Tax Policy Making" that was published on the same day as the Budget. The Exchequer Secretary to the Treasury, who was with us and is back with us now, wrote the foreword, in which he said:
"I want a new approach to tax policy making; a more considered approach. Consultation on policy design and scrutiny of draft legislative proposals should be the cornerstones of this"
system. Therefore, I am quite sure that he would be comfortable with all the hon. Members, including the hon. Member for St Ives (Andrew George), using the device of a Finance Bill to tease out many of these proposals and their implications.
I quoted from three key paragraphs of that paper on tax policy, which suggested that there should be more effective scrutiny of tax legislation, that a tailored tax impact assessment would replace the current regulatory impact assessment and that the Government would consider greater use of sunset clauses, or a trigger for an evaluation in legislation. Quite a number of the amendments propose sunset clauses, triggers for evaluation or impact assessments. On that basis, I would have thought that Ministers could accept amendments 55 and 22, tabled by the hon. Members for St Ives and for Nottingham East (Chris Leslie), which propose different sunset clauses.
The hon. Member for St Ives chose a two-year period for his sunset clause. I pointed out in an intervention that it just happened that two years was the period that the Government had used for their assessment of the impact of the tax changes on families and households. Two years is also, of course, the period of the public sector pay freeze, so if the public sector pay freeze is part of the emergency period and defines the emergency period of the Budget, surely there is a case to argue that if this is an emergency increase in VAT that has to be undertaken to get revenue in now, to help reduce the deficit, it should similarly be time-limited.
The colleague of the hon. Member for St Ives, the hon. Member for Bristol West (Stephen Williams), spoke in a strange way-I do not quite know what this twilight zone rule is whereby the hon. Gentleman speaks not only as a Government MP but in some other role, not as a spokesperson for the party, but as someone who has been told to speak here for the party as Chair of some
Back-Bench committee. No doubt when this twilight zone rule is worked out, we shall find out more. He was confident enough that because there would be Finance Bills every year, this measure would be subject to change and review, but that is not what the Chancellor told us in the Budget statement. In referring to the increase in VAT to 20%, he said:
"This single tax measure will by the end of this Parliament generate over £13 billion a year of extra revenues."-[ Official Report, 22 June 2010; Vol. 512, c. 177.]
The hon. Member for Elmet and Rothwell (Alec Shelbrooke) argued that VAT is more progressive than income tax because only 50% of goods are subject to VAT. That is a completely new argument, even for the Tories. Of course, as other hon. Members have said, if people believe that the increase to 20% will reduce the deficit and be benign in its progressive impact, why stop at 20%? Why not continue much higher? That is the nonsense that we are being treated to.
Other amendments seek to make exemptions for children's necessities and other things. In an earlier intervention, my colleague, the hon. Member for East Antrim (Sammy Wilson), said that all Governments should make much more selective use of the menu of VAT rates, which they could apply to certain services to help to stimulate construction and other sectors. All of us hoped that the Government would continue that in future, rather than just locking on to the relentless pursuit of keeping VAT high for now and for good.
The hon. Member for St Ives also questioned the difficulty caused by the fact that the Treasury and Whips tell Members that we cannot change part of the Budget because the whole thing is a package. After we heard the Budget statement, we debated a number of resolutions. Some Members voted for some of them and against others, and other Members abstained. Those resolutions are all different, and they must all be taken differently. This proposal comes to us in the form of a Finance Bill. Members have the right to seek amendments on specific measures because of their impact. Labour Front Benchers have tabled amendments that would require clear impact assessments before changes can come into effect. That is logically consistent with what the Government said in their paper, "Tax Policy Making: a new approach", so why should it not happen?
We have all spent the past year reeling from the impact on the credibility of politics and Parliament of the expenses scandal. During the debate, Members on both sides have traded points about the fact that there is a basic dishonesty and self-delusion and self-deception in some of the positions that are being adopted. It does nothing for the credibility of the political process when we can all point out the inconsistencies in one another's position. That just adds to the credibility deficit in the political process, whatever we say about trying to cope with the national deficit.
The Liberal Democrats have been asked about their position several times today. In fairness to the hon. Member for St Ives, who is publicly carrying his doubts, I should say that he has at least participated in the debate-everyone else has absconded-but we need to know, as the hon. Member for South Antrim (Dr McCrea)
asked, when exactly was the moment of conversion. The Liberal Democrats have not undergone the only conversion; we now hear Tory Members seeing many merits in the measures in the Budget that they had previously denounced, rejected and campaigned against. We now have more Government Members on more roads to Damascus than does the Syrian bus fleet. At some point, they will have to tell us what caused that, other than just a conversation with the Governor of the Bank of England.
The hon. Member for Hemsworth (Jon Trickett) referred to the Secretary of State for Business, Innovation and Skills, who, of course, told the House in the Budget debate that what changed him was a conservation he had with the Governor, who used the scary words, "sovereign debt crisis", which changed the right hon. Gentleman's mind. Of course, that is the same Governor of the Bank of England whom the right hon. Gentleman lampooned for a long time for telling us that there was no recession coming, when other people could see it coming and said so. After that magic conversation, policy changed completely.
However parties have got into this position, Parliament, particularly this House, which has a duty in relation to budgetary matters and Finance Bills, has a corporate duty to ensure that we scrutinise policies and assess their impact. The classic example, which was mentioned by Conservative and Liberal Democrat Members, existed in the last Parliament when the then Chancellor abolished the 10p tax rate. Many people said that that would have an adverse impact on the poor, but the then Chancellor said, "No, bunkum. That's not what the Treasury figures show." Many Labour Members were bamboozled into accepting that, simply because they were told that it was part of a package and that, if they voted against it, the whole thing would fall apart. However, those who said that it was wrong and challenged it were right, and they were vindicated and proved to be right. That was Parliament working properly.
Andrew George: The hon. Gentleman is making a thoughtful contribution to the debate. I think that, in summary, he acknowledges that none of the larger parties ruled out before the election the possibility of a VAT rise. We are here post-election, when we are no longer seeking votes, and we are facing the political reality of having to address the seriousness of the problems with the public finances. I hope that he will accept the fact that the coalition Government involves two very distinct parties and that we have to have that debate publicly; that is part of the new politics.
Mark Durkan: I accept that the hon. Gentleman is wrestling with his conscience, but the bets are that it will be a draw. We remember the explicit terms in which people talked about VAT increases. The leader of the Liberal Democrats specifically campaigned strongly against VAT increases and particularly fingered another party on that basis and spelled out that it was a regressive tax. He was right then; he is wrong now to pretend that it is not a regressive tax that will clearly have an impact on the poor-not just on the existing poor, but on the new poor created in the context of the Budget and the current financial outlook.
People who are in public sector jobs will be put out of them. People on public sector incomes above £21,000 will face a pay freeze-that is a pay cut in real terms-and we know from what has been said in the Budget that many people on benefits will either find them capped or themselves dumped off benefits. In those circumstances, not just the existing poor, but the new, additional poor will suffer. If we consider the Budget as a package, we must think about those sides of the package as well, not just the Lib Dem accessories that they are proud of in the Budget, such as the increase in personal allowances and so on. The total impact needs to be remembered, and that is what most of these amendments are getting at.
Of course, there is a clear, absolute overriding amendment, which has not been tabled as a probing amendment. It is amendment 13, tabled by the hon. Member for Dundee East (Stewart Hosie). Just as many Labour Members have criticised Lib Dem Members and questioned their credibility, given what they campaigned on, and challenged Tory Members as well, I have to tell my Labour friends that, if they want to be credible in the criticisms and attacks that they are making on the Lib Dems, they will vote for amendment 13.
Jonathan Edwards: I am delighted to have this opportunity to speak in support of amendment 13, which was tabled by my hon. Friend the Member for Dundee East (Stewart Hosie) on behalf of the Plaid Cymru-Scottish National party group.
Our opposition to the increase in the standard VAT rate from 17.5% to 20% from January stems from two key reasons-one social and one economic. On the social front, there is little doubt that VAT is a regressive tax. As the excellent Library paper on this specific emergency Budget proposal indicated, the poorest in society spend 18% of their disposable income on VAT, while the richest spend about 10%. For the poorest in society, VAT is more likely to hit necessary spending, but as one gets richer VAT costs tend to hit discretionary spending, and that is a very important distinction.
The increase in VAT will also leave people on fixed incomes terribly exposed. The Budget included real-terms cuts in benefits payments, given the change from the retail prices index to the consumer prices index for the calculation of benefit increases. Only today, we saw the levels of RPI at 5% and of CPI at 3.2%. The people dependent on welfare payments therefore face an unwelcome double whammy on their incomes, affecting their purchasing power-a theme to which I shall return later in my contribution.
There is always a lag between the human cost of a recession and the end of an economic downturn, so placing further pressure on the very people who are the true victims of the banking crisis by hitting their disposable income seems callous. Indeed, the VAT increase could actually deepen the human cost of the recession as social problems such as personal debt increase. For those of us on the left of the political spectrum, the steep VAT increase in the Bill, and its disproportionate effect on the poorest in society, contrasts with the treatment of the banking and economic elite, who have had a far easier ride in the emergency Budget. Social justice would demand that those responsible for the economic recession-with their irresponsible behaviour-and the subsequent budget deficit, which fixates the
new UK Government, should pay more than their fair share. Although the VAT increase will raise £13.5 billion, the bankers will be subject to a feeble banking levy of £2 billion per annum when it reaches its full force-with its effect wiped out by the changes to corporation tax.
I deal now with the economic argument against the VAT increase in the Bill. VAT is essentially a tax on consumption. Considering that economic growth over the past decade was largely driven by consumer spending, resulting personal debt levels in the UK rocketing to the equivalent of 100% of gross value added, at £1.4 trillion, there is a medium to long-term economic case for addressing that unsustainable situation by reducing the dependence on retail spending in the economy and promoting production and manufacturing. Indeed, debt charities such as Citizens Advice report that the debt problems they deal with continue to increase as the human cost of the recession feeds into the system.
My preference would be to change the banking code and make it more difficult for lenders to seduce consumers into debts that they cannot service, rather than directly reducing the purchasing powers of individuals via the use of VAT. However, the major issue faced by the economy is a lack of demand. Growth in consumer spending will be the key if the UK Government are to reach the economic growth forecasts they have set in order to achieve their fiscal consolidation targets. The eminent economist David Blanchflower has argued that the Budget's VAT proposals will stymie the consumer-led growth on which it depends. The increase will also hit small businesses, which are the backbone of the economy in constituencies such as mine.
Importantly, the increase in VAT will also hit the public sector at a time when UK Government Departments are being asked to make swingeing cuts to their budgets. I should be very interested to learn whether the Treasury has calculated the effect of the VAT increase on the budgets of the devolved Administrations, and whether any consideration of the VAT increase has been made, given the stringent financial situation that the devolved Governments now face.
Furthermore, T he Guardian estimated over the weekend that charities could face additional costs of £150 million per annum as a result of the VAT increase. Considering that they are the very bodies that will bear the brunt of dealing with the human cost of the economic downturn, I must note that slapping an extra bill on the activities of those vital life-support organisations is a very worrying indirect consequence of the proposal. For those reasons I urge the Committee to support amendment 13 when we vote later.
This has been a good debate. I know that the amendments have been grouped in a certain way because of how they interrelate, but none the less, having heard the debate and the contributions of right hon. and hon. Members, we will seek to divide the Committee on amendments 41 and 46, as well as on clause 3. I think that we will turn to amendment 35 in a moment.
This has been an important debate, because we have seen with greater clarity where not only Conservative but Liberal Democrat Members stand on the issue before us. However, the hon. Member for St Ives (Andrew George), looking at tax policy in the round, was right to say that the VAT rise has to be-in his words, I think-among the least welcome alternative proposals. He did not want to be drawn into the Chancellor's wider fiscal judgment, and that was unfortunate; instead, the hon. Gentleman wanted to debate the balance of measures in the Budget, and he sought a different balance. He could have made more of the fact that the Budget hits growth in this country so hard that an extra £9 billion of tax has to be raised to make up for lost growth.
The hon. Gentleman's hon. Friend, the hon. Member for Bristol West (Stephen Williams), confused us-perplexed us, slightly. I was not sure whether he was elected, appointed or anointed to the position from which he spoke, but he confirmed that he was speaking on economic affairs on behalf of Liberal Democrat Back Benchers, rather than Front Benchers. I was not sure whether that was a device for saying one thing and doing another, but he rapidly disabused us of that with his support for the Government's case. His was a strange argument, because he said he would not support our amendments to protect pensioners and others, as somehow our arguments lacked moral force. So there we have it: the party of Lloyd George is now so empty of moral momentum that it has to look to the Labour party for its source of ethical locomotion.
We heard some powerful speeches from Opposition Back Benchers. My hon. Friend the Member for Nottingham East (Chris Leslie) underlined the point that the Budget does not share out the pain, and that those with children, in particular, will be hit very hard. He was right to highlight the commentary in the City outlining the hit that retailers will take, and he had a very good phrase: VAT will be both regressive and regrettable. That is a good conclusion to our debate.
My hon. Friend's speech was echoed well by my hon. Friend the Member for Leeds West (Rachel Reeves), whose constituents, she said, earn just £16,000 a year. They will be hit very hard by this Budget, and that particular unfairness was highlighted by my hon. Friend the Member for Pontypridd (Owen Smith), who made an excellent point about the problem of irrecoverable VAT and how it will hit the national health service. My hon. Friends the Members for Caerphilly (Mr David) and for Hemsworth (Jon Trickett) also made excellent arguments about the hit on jobs. Of course, there has been some confusion about that from Government sources over the past couple of weeks, but the bottom line is pretty clear: employment will be much lower as a result of this Budget, in contrast with previous Budgets. The IMF, if we needed any help reinforcing the point, backed up that argument earlier.
We are having this debate ultimately because of the Chancellor's wrong-headed decision on the fiscal judgment. The Budget was so damaging that his own independent
advisers told him that they had no choice but to downgrade the country's growth forecast, and the IMF rapidly followed suit. Just when Britain needed a Budget to speed up the recovery or, at the very least, maximise its certainty, we were given a Budget that actually slowed the recovery down. The reason we were given was the strange behaviour in the markets, but in fact interest rates and long-term bond yields had been falling for some time before the election. This Budget entirely ignores that point. It hits growth so hard that it has to raise extra taxes, and that is before we address the impact on jobs.
We are still trying to get to the bottom of the changes to how the OBR forecasts job losses, but the Red Book's judgment was grim enough: 100,000 fewer people will be in work as a result of this Budget. That is because the Conservatives have reverted to type and decided that, just as in the 1990s, 1980s and 1930s, unemployment is a price worth paying. It is only a shame that the Liberal Democrat party-the party of Keynes-has abandoned its intellectual heritage and signed up to the economic doctrine of Lord Lamont, the man who famously sang in his bath as unemployment spiralled, "Je ne regrette rien."
All this follows from one decision-that of the Chancellor to bring forward by just a year the date at which debt as a proportion of GDP begins to fall. The price of that is a £40 billion increase in taxes and spending. It means that the Chancellor is now relying on a growth strategy for the next few years that is quite unlikely to come to pass. He has not hedged his bets; he has decided to hit domestic demand and consumption as hard as he possibly can. He is, I am afraid, going for broke.
That is why we object so strenuously to clause 3. I hope that the Government see fit to accept the amendments that we have tabled to try to protect people from its most egregious impacts. If they do not, I am afraid that we will have to vote against clause stand part
Mr Gauke: In his Budget of 22 June, my right hon. Friend the Chancellor announced that the standard rate of VAT would increase from 17.5% to 20% on 4 January 2011. Clause 3 and schedule 2 effect this change. In the course of this afternoon, we have had a good and lengthy debate. Several hon. Members have spoken to amendments that would either cancel the rate rise entirely or reduce its effects. Of course, we understand hon. Members' concerns about the impact of this change on low-income households. I therefore propose to reiterate our reasons for taking this path, in the course of which I will deal with the various amendments.
Before doing so, it is necessary to point out that the VAT rise was one of the central measures in the emergency Budget-a Budget made necessary because the coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe with the single exception of the Republic of Ireland. The independent OBR's pre-Budget forecast revealed that the structural deficit-the part of the deficit that will not go away with the recovery-was higher than previously thought, at around £12 billion, or 0.8% of GDP, higher in 2011-12. That means that £1 in every £4 we spend is
being borrowed. The gap stands at £149 billion for this financial year alone, yet the previous Government left us with no credible plans to reduce their record deficit. The OBR forecast that, if we had continued with the previous Government's plans, debt repayments would reach more than £67 billion by 2014-15-more than is currently spent on defence or on schools in England.
Nothing at this time is more urgent for Britain than setting out a tough but realistic plan that demonstrates how we will regain control of the public finances. We have literally no other option. The Government are therefore taking urgent action to eliminate the bulk of the structural deficit as a necessary precondition for sustained economic growth. High levels of public debt could lead to a loss of market confidence and higher interest rates, raising the cost of borrowing for families and businesses and discouraging investment and consumer spending. To continue with the existing fiscal plans would put the recovery at risk, given the scale of the challenge and the risk posed by the sovereign debt crisis in Europe.
My hon. Friend the Member for St Ives (Andrew George) asked about the Government's willingness to make hard choices. It is necessary to look at this VAT measure in the context of the overall Budget measures. It is not possible to remove it, because the central message of the Budget was that we have a Government who are willing to get to grips with the deficit and to bring our borrowing down, and if we are to address that quickly it is necessary to move forward with the VAT increase.
Andrew George: I understand that hard decisions need to be taken. Last night, when the Financial Secretary spoke to the British Bankers Association, he mentioned a new initiative-a proposed additional levy on banks in respect of their bonuses and profits. Does the Exchequer Secretary know what that might yield? I am sure that many of us in this House would prefer to see those who contributed most to getting us into this difficulty doing most to help us to get out of it, rather than levying rises in VAT.
Mr Gauke: I assure my hon. Friend that this Government are determined to raise as much as possible from the banking sector. He makes the very good point that it is right that those who got us into this mess should contribute significantly to getting us out of it. However, we need to move quickly to provide reassurance to international investors that the UK is a safe place in which to do business and that we will not be caught up in a sovereign debt contagion. His point is well made, but we still have no choice in needing to raise substantial sums of revenue in a certain way.
We were left with a very difficult choice as to whether to fill the black hole with yet more spending cuts or increase taxes. Further spending cuts would have made it impossible for the Government to protect the country's most essential services in the spending review. It is notable that, in the past couple of days, two of the candidates for the leadership of the Labour party have suggested that the previous Government's own plans on cutting spending went too far. The shadow Education Secretary has questioned whether they were seeking to cut the deficit too much by cutting taxes, while the shadow Health Secretary has said that they should have
looked more at raising taxes. I see no appetite on the Labour Benches for more spending cuts. The only other option would have been to raise taxes on corporate profits or on personal income, reducing the rewards for work at a time when hard work and endeavour must lead the recovery and ensure that we have a private sector-led recovery. We need to reduce the deficit in a sustainable way that does least damage to growth. While the bulk of the deficit reduction will come from spending, tax also has an important part to play.
We increased VAT rather than increasing income tax or national insurance contributions, which are probably the only other sources of revenue with the capacity to raise the necessary sums, because that was the least economically damaging way of doing this. Of course, we are not alone- [ Interruption. ]
The Temporary Chair: Order. It is very difficult for the Minister to hold the attention of the Committee with so much going on; he looks disturbed by the chattering. Can we give him a chance to finish his speech in peace?
Of course, we are not alone in reaching the conclusion that the right step is to raise VAT. With exquisite timing, we saw today the serialisation of Lord Mandelson's memoirs, in which he noted that the previous Chancellor had reached the conclusion that raising VAT was the right thing to do. Apparently, he told Lord Mandelson that he was
"minded to...raise it over time, to 18 or even 19 per cent, rather than push up national insurance charges."
"These were exactly the sort of hard choices that would enable us to regain the initiative."
"This Budget is the UK's first important step on the long journey back to economic health."
"The path of deficit reduction and public debt projections set out in"
"Budget statement are materially stronger than those set out in the March 2010 Budget."
I am afraid that I cannot accept amendments 13 and 14, tabled by the hon. Member for Dundee East (Stewart Hosie), which would prevent the VAT increase from happening. I have explained that we have no option other than to take this action, and I therefore ask the hon. Gentleman to withdraw them. Similarly, amendment 22, tabled by the hon. Member for Nottingham East (Chris Leslie), and amendments 54 and 55, tabled by my hon. Friend the Member for St Ives, would undermine the basic rationale for the increase. They would not allow us to reduce the deficit as quickly as we would like. I agree with the observation made by my hon. Friend the Member for St Ives that one would have expected the shadow Chancellor to support amendment 54.
I have a particular concern about amendments 22 and 55. One argument made for the temporary VAT cut by the previous Government was that it would shift expenditure into the relevant year, 2009, when the VAT rate was somewhat lower, and therefore accelerate the recovery. If we did the reverse of that and had a sunset clause, essentially setting out plans to increase VAT but with a promise that we would then reduce it, it would have the reverse effect. It would defer expenditure, which would damage the recovery.
I note the point made by the hon. Member for Foyle (Mark Durkan) about the Government's views on sunset clauses. The tax policy document that we produced is very good and has been well received, but the arguments for a sunset clause in the case of a rate change are not very persuasive, particularly given the economic effects that it would have.
Andrew George: The premise behind my amendments was that, as this is an emergency Budget, the VAT rise must be an emergency measure, which must surely be time-limited. Can the Exchequer Secretary confirm to the House that there is no intention of retaining the 2.5% rise for all the coming years of this Parliament?
Mr Gauke: We have announced the policy and the increase. All taxes are reviewed on an ongoing basis, and that will obviously be the position with VAT. However, for the reasons that I have set out, it would not be sensible to have a sunset clause. It would have a damaging effect on the pattern of expenditure.
Underpinning the Government's approach is a commitment to fairness. Consequently, the VAT increase will apply only to the standard rate, ensuring that the zero rate is maintained on everyday essentials such as food and children's clothing, and that the 5% rate on domestic fuel and power stays in place. It is also part of a wider Budget package in keeping with the Government's commitment to tackle the deficit while protecting the most vulnerable.
The VAT charge is part of a fair and progressive Budget, and the wider package contains a number of measures specifically intended to help the most vulnerable, in particular the increase in personal allowances by £1,000, the triple lock for increases in the basic state pension and the above-indexation increase in the child care element of the child tax credit. All sections of society will contribute to tackling the deficit, but the richest will pay more than the poorest. That has been supported by the chief executive of Barnardo's, who has said that
"we recognise the Government has done what it can to protect the most vulnerable."
Amendments 1 to 4 would provide that the rate increase would come into effect only after an impact assessment had been laid before the House. Similarly, amendment 25 would provide that before the rate increase took effect the Chancellor must produce a report on its impact on a number of specific groups. Amendments 41 to 43 are further variants on that theme, as is amendment 46. Together, they would provide that the increase be deferred until the earlier of 4 January 2012 or the date of the production of a report on the impact of the increase on disabled persons, pensioners, children and child poverty, inequality, the bottom quintile, charities and the informal economy.
Those amendments are unnecessary. At a time when the Government need to show a willingness to tackle the deficit and a sense of direction to ensure that there is confidence in the running of the British economy, it is vital that we have the credibility of bringing the VAT increase into effect as soon as possible. It is worth noting that the OECD has stated that the Government have demonstrated that they are taking courageous and appropriate action in the Budget. That is what we are doing, which is why it is right that we reject attempts to delay the implementation of the VAT increase.
Although we have not necessarily labelled all the material that we have produced on the matter as impact assessments, we have produced a great deal of material about the impact of the VAT increase and the Budget more generally. It would be damaging to businesses if we did not proceed, as they need the certainty that we will do so.
I shall set out some of the impacts of the rise that we have already described. In annex C of the Red Book we set out the OBR's assessment of the economic impact of the Budget measures. The impact of the VAT increase is built into the inflation forecast in paragraph C.19. Paragraph C.23 sets out the impact on household demand and paragraph C.24 the impact on company profits. Paragraph C.5 sets out the OBR's view of the VAT tax gap, and paragraphs C.39 and C.64 explain that VAT is expected to fall as a percentage of GDP, because the OBR assumes rebalanced economic growth with consumption - [ Interruption .]
The Temporary Chair: Order. I think it is in the best interests of the Chair and everyone here if we get a chance to hear what the Minister is saying. He is trying to express his point of view in answer to a very long debate, so let us have a bit of patience and let him finish his speech so that we can all hear it.
Mr Gauke: Thank you, Mr Hancock. I could go on setting out the lengthy list of information about VAT that we have provided. The Opposition's case that there has not been any analysis is all the more ironic given that Labour was the party that produced the doubling of the 10p rate of income tax and provided no distributional analysis whatever. We, however, have examined that particular tax change, and it is worth noting that the five bottom deciles lost out and the five top deciles gained. That is what our predecessors did, and it is not the case under the distributional analysis of VAT. As I have said, there is a strong case for looking at the expenditure basis, which shows that VAT is indeed progressive.
Amendment 23 would provide for children's prams, cots, nappies and other items to remain at 17.5%. I am afraid that that amendment is illegal under EU law, so we cannot pursue it. Amendment 40 would provide for the Treasury to produce a report on the standard rate of VAT by 4 January 2011. The Chancellor has made it clear that we have no plans in that regard.
Clause 3 makes provision for the standard rate of VAT to increase from 17.5% to 20% on 4 January 2011. That is an unavoidable measure, and I urge the Committee to reject the amendment, which risks the Government's plan to reduce the deficit.
Stewart Hosie: We have heard all the arguments over a long debate, but we remain convinced that this VAT rise is regressive, socially damaging and economically dangerous, and we invite many Members from across the House to join us in supporting amendment 13 to strike down the rise.
The Minister and his colleagues argue that the rise is necessary and inevitable. It is not necessary to increase the VAT bill for the poorest families by more than £31 a week; it is not necessary to put further pressure on those who will feel the burden of housing and unemployment benefits and tax credits being squeezed; it is not necessary, as the British Retail Consortium said, to introduce a "disappointing" measure that "will hit jobs"; and it is not necessary to introduce a measure that can push up prices on the high street and is inflationary.
It is necessary to tackle the deficit and the debt, but it need not be done over a fixed time scale using this methodology. It is far better to take a medium time scale approach that tackles it credibly. We think that the VAT rise is wrong, and I shall press amendment 13 to a vote.
The Temporary Chair: For the convenience of the Committee, I should explain that we are going to move directly to debate amendment 57, in the name of the hon. Member for St Ives (Andrew George). There will be further votes on amendments in the previous group, but they will come at the end of the next debate.
'Subject to subsection (3A) below,'.
'(3A) The amendment made by subsection (1) shall not have effect in relation to any supply made on or after 4 January 2011 to a charity where such supply is made to that charity solely in relation to its charitable non-business activities.'.
"purchases of goods or services made by registered charities ...purchases of goods or services made by public authorities,"
"renovations of dwellings in council tax bands of F or below".
The purpose of the amendment is to further the debate on an issue that I have been probing in both the Budget debate and in debates on the Finance Bill. In spite of the great speed at which the issues have been considered, we have had the opportunity both to review the evidence brought forward by the Treasury to support the proposed VAT increase and to discuss this with some of those affected in the sectors concerned.
I do not intend to detain the Committee for too long, but on charities, a certain amount of work has been under way for some time. It is perhaps worth while acknowledging that Governments of both parties over the past couple of decades have looked into the problem that the charitable sector has had with irrecoverable VAT. A number of attempts have been made to address it, and although charities have not been able to secure a special VAT status, the best way in which Governments have felt that they could be compensated-in the past, at least-has been through the gift aid mechanism. It is clear from the Exchequer Secretary's answers to questions that I have asked previously about the impact of the VAT rise on charities that the Treasury does not intend to make any exemptions for them.
The Charity Tax Group has published a paper since the Budget suggesting that an increase in VAT to 20% would cost around £150 million. Although I have not studied the analysis, I believe that that figure was arrived at on the basis of an extrapolation from 87 charities across the range of sizes. If the Government believe-and I would agree with them-that the charitable and third sector has a significant contribution to make to a number of social and economic measures to improve our society, they need to give it some consideration in the Budget.
As for the second of the measures, I know that various attempts have been made to estimate the likely impact of the VAT rise on public authorities. I have questioned local housing associations, for example, including Penwith housing association in my constituency-a relatively small housing association, but one covering the bulk of the stock in the Penwith peninsula, which is the Land's End peninsula, to most people who understand the geography of Cornwall; that is, the bottom left-hand corner of the UK. Penwith housing association has estimated that the VAT rise will add just over £150,000 in costs to its modest activities over the year, and that will affect it, as a local housing association performing an important public function.
Bob Russell: (Colchester) (LD): Will my hon. Friend confirm that the small charity to which he has just referred was in no way responsible for the financial mess that the country was left in by the previous Government?
Andrew George: I am grateful to my hon. Friend for that intervention. He might have missed some of our earlier exchanges on these amendments, but it is fair to say that concerns have been raised about the way in which the Budget gets the balance right, and the way in which we might achieve circumstances in which those who did the most to drop the country into this mess were seen to be doing the most to pull it out again. This has been a theme throughout our debate.
I reflected earlier on news that was reported today. I was not at the British Bankers Association dinner last night when the Financial Secretary to the Treasury proposed certain new measures that were not in the Budget. They would result in additional taxation of the banks' bonuses and profits. That would be over and above the banking levy, which Liberal Democrat Members were particularly pleased to see incorporated in the Budget.
I do not wish to stray beyond the subject matter of the amendments, Mr Hancock, but if we are talking about removing the capacity of the Budget to increase the tax yield in a particular area, it is important to indicate where we might recover that tax from. For example, we should perhaps be looking at a banking levy of 0.04%, going up to 0.07%, possibly with a view to increasing it. I welcome last night's announcement by the Financial Secretary to the Treasury, however, and I hope that we shall hear more about that matter, because I think that it is taking the policy in the right direction.
Mr Adrian Sanders (Torbay) (LD): I congratulate my hon. Friend on tabling the amendment. Has he made any assessment of the churning of Government money that goes into the charitable and public sectors and that will now be paid back through the increase in VAT?
Andrew George: My hon. Friend is asking me whether I have made that assessment, but I have in fact been seeking such an assessment myself. As I mentioned a moment ago, the Charity Tax Group has made its own assessment based on a survey of 87 charities. That is a modest attempt, but it is also a significant effort on behalf of the charitable sector to undertake its own assessment and to extrapolate information from it. I believe that that assessment took a reasonable random sample across a range of charities, and that is probably the best that the group could manage in the circumstances.
Alun Michael (Cardiff South and Penarth) (Lab/Co-op): I do not want to embarrass the hon. Gentleman, who has been a vigorous champion of the voluntary sector over the years. However, according to his own words, £150 million is going to be extracted as a tax on charities as a result of these measures. He says that the Treasury is unwilling to make concessions. Does he not find that unacceptable?
If we are seeking to make that kind of point, it is worth pointing out to the right hon. Gentleman that when Labour was in government, it did very little to address the problems in that sector. I am concerned that families across various income groups will be affected by the proposals, and we have still not received sufficient information about the impact on those groups. This question has dominated much of our
debate, and other sectors of society, including charities, public authorities and those involved in building renovations, will also be affected.
Alun Michael: I dare say the hon. Gentleman feels obliged to make some party political points, but would he not acknowledge that the creation and expansion of gift aid gave a massive boost to the charitable and voluntary sector over many years, and that that is just one of a large number of issues that the previous Government did address? It is his Government who are responsible for the fresh burden placed on this sector by the Budget, so why does he not find it unacceptable?
Andrew George: I have already acknowledged the benefit of gift aid as having an ameliorating impact on the consequences of irrecoverable VAT for charities; that reasonable point has already been acknowledged. At the end of the day, this issue needs to be addressed, but I do not want to go back to a Second Reading debate on how we get the proper balance of measures. I would have thought that, across the Committee, the balance of Members would agree, as I do, with what the Chancellor announced on Budget day-that those most capable of making a contribution should pay most and the vulnerable should be protected. The VAT rise raises questions about whether the vulnerable are sufficiently protected by the range of measures in the Budget as a whole.
Kate Green (Stretford and Urmston) (Lab): I welcome much of what the hon. Gentleman says about the importance of looking at a balance that achieves protection for the most vulnerable, but one problem with increasing the burden on charities is that it feeds through to the most vulnerable because they are, of course, their client group. Many charities will be either unable or reluctant to pass on to their service users the consequences of this VAT rise, so they are likely to eat into their own reserves, weaken their own financial standing and, ultimately, get hit with the additional whammy of finding it more difficult to attract funding from other sources, including those in the public sector. That will reduce their impact-their very good impact-on the most vulnerable in society.
Andrew George: The hon. Lady makes the point about the potential impact on charities rather more articulately than I think I am making it. There are potential knock-on consequences for charities, and for public authorities, in being able to perform their functions, so it is important to address those issues.
Finally, on the renovation of buildings, the primary purpose is to distinguish between the treatment in VAT law of new build and of renovation. I am seeking to probe that subject in order to elicit a response from the Exchequer Secretary. Surely we as a society should be trying to encourage renovation of existing buildings rather than always taking up greenfield sites for development. In particular, we should not discourage improvements to dwellings in the lower council tax bands.
Sir Alan Beith (Berwick-upon-Tweed) (LD):
Does my hon. Friend appreciate that there are cost-neutral ways of removing that imbalance, which are always opposed by the volume builders-despite the fact that there is not much volume building going on. The renovation of
existing properties could contribute a great deal more to dealing with homelessness if both kinds of activity were taxed at the same, relatively low, VAT rate.
Andrew George: I agree entirely with my right hon. Friend. We are limited in what we can achieve by amending this Bill, as I know because I went to the Public Bill Office and sought advice about what was possible. I cannot suggest the introduction of entirely new measures, but my right hon. Friend is absolutely right to say that if we were able to range freely with amendments to the Finance Bill, we would have opportunities to revisit this issue in a new way.
Simon Hughes (Bermondsey and Old Southwark) (LD): This issue is a long-standing subject of debate. Following what was said by my right hon. Friend the Member for Berwick-upon-Tweed (Sir Alan Beith), may I suggest that it would be helpful to hear from Ministers later whether they have considered revenue-neutral ways of taxing renovation as opposed to new build? Are there not very good environmental reasons, very good energy-saving and green reasons, and very good land use and planning reasons, for continuing to use existing sites rather than building on new greenfield sites?
Andrew George: I am grateful to my hon. Friend for making that point. I hope that the Exchequer Secretary is listening carefully, and will respond to all the points raised in relation to this amendment and others that deal with the same issue.
John Hemming (Birmingham, Yardley) (LD): I should declare my interests. I am a senior partner in VAT-registered organisations, one of which writes computer software that calculates VAT. A need for complicated VAT calculations would, of course, provide us with lots of money, but I have some concerns about the practicality of my hon. Friend's proposals, although I agree with the principles. Is this a probing amendment, or does my hon. Friend intend to press it to a vote?
Andrew George: I think I can reassure my hon. Friend that it is a probing amendment. It was put together at some speed, and I believe it is technically deficient, in ways to which I shall not draw attention. [Interruption.] No doubt others will. I hope, however, that the Exchequer Secretary will concentrate on the issues raised by the amendment rather than on its technical deficiencies, which I fully acknowledge.
Amendment 56 seeks to achieve the same aim, but introduces a new concept. It proposes that the increase should apply only to purchases of more expensive goods. For the purposes of the debate I have set the level at £25,000, although I could have suggested that VAT on goods and services costing that amount should rise by a great deal more. There may also be an argument for a range of charges for goods and services between £2,500 and £25,000.
The level, as such, is not something that I would die in a ditch to defend. I am concerned simply with the principle of adopting a measure intended to achieve what the Budget stated that it wished to achieve, by ensuring that those who can contribute most to restoring
the public finances do so and the vulnerable are protected. Those who can buy expensive yachts, big Ferrari cars and other expensive consumer durables may be more able to make their contribution through a rise in VAT than the vulnerable households and individuals who have, I believe, been the predominant concern of Members on both sides of the House.
I do not expect the Exchequer Secretary to accept the amendment without question this evening. However, I shall be interested to hear his response to the general theme. It has been acknowledged-certainly by the Institute for Fiscal Studies-that the lowest decile in terms of household income will pay a higher proportion of their income to meet the proposed tax rise, but I hope that a measure to reduce its impact on those with modest and low incomes will be acceptable to the Treasury, either now or in the future.
Mark Durkan: I thank the hon. Gentleman for being so generous in giving way. May I probe him on his probing amendment? He has picked £25,000 as the sum at which the higher rate of VAT would be charged on goods and services. Has he picked that sum so that the seats purchased by Lord Ashcroft would be subject to the higher rate of VAT, or would they fall just outside that?
Andrew George: The hon. Gentleman has greatly entertained us with his intervention, but I do not think I will respond to it-especially as if I were to do so I think that you would probably rule me out of order, Mr Hancock.
In summary, I wanted to highlight the knock-on effect of VAT on public authorities and charities and, as many of my party colleagues have also done, the impact on building renovation. That sector could be substantial,
and we should be encouraging it, not discouraging it. We should also seek measures that protect vulnerable households and people on low incomes-and that is the purpose behind my amendments.
The Temporary Chair: The Chairman of Ways and Means has selected these amendments and has grouped them very narrowly. I hope that Members will respect his wishes by addressing them as they are grouped on the selection list.
This debate has already shed a great deal of light on the impact of this hasty rise in VAT. Over the course of the afternoon we have heard about the impact of the rise on a number of groups about which we are all concerned. We heard about the impact on jobs, the economic recovery, the low-paid and pensioners, and this group of amendments offers us an excellent chance to examine the impact of this rapid rise in VAT on Britain's charities. I will not speak at length, but I want to make a few quick points.
Amendments 35, 36 and 37 seek, in essence, to stop the VAT increase applying to the goods charities buy in to deliver what is called their "charitable non-business activities", and for which they cannot then charge VAT. I know about the difficulties of protecting charities from VAT altogether, and I am sure that the Exchequer Secretary will return to that point, but this is an important debate that we have been pursuing for some time.
I know that many charities want to be classified like, for example, local authorities, which do not have to pay VAT in the same way. Many groups, including the Association of Chief Executives of Voluntary Organisations, have been arguing for some time that in the competitive provision of services, especially in the public sector, local authorities are often at an advantage compared with charities and third-sector organisations.
Ian Lucas (Wrexham) (Lab): Does my right hon. Friend not agree that, in a sector in which charities are being encouraged to play a larger role in delivering services that are often supplied by local authorities, that distinction is particularly inappropriate?
Mr Byrne: This is a particular problem, and I was about to pay tribute to my hon. Friend, who has done some important work with the Library in helping us to understand what this VAT increase will actually mean for Britain's charities. I also commend the work of the Charity Tax Group, which the hon. Member for St Ives (Andrew George) prayed in aid. Its assessment is pretty blunt-that this increase will cost Britain's charities £140 million to £150 million. Because much of that VAT cannot be reclaimed, Britain's charities stand to lose £60 million to £70 million. That is a lot of money, and certainly a lot for charities that are already struggling with contributions, which are down because of the recession. Many in the sector are worried about how voluntary contributions will rebound as the recovery sets in.
Others who read the research will, like me, have been struck by the Charity Tax Group's case study of Action for Blind People, one of the largest charities in the UK, which provides free and confidential support for blind and partially sighted people. The study makes the point that the rise in irrecoverable VAT for Action for Blind People will total some £100,000 a year. Charities in that sector that are about to take such a hit must immediately look at which services they can no longer offer. That gives rise to a question that will concern Members in all parts of the House, and which demands an answer: how are these charities going to be compensated for this hasty increase in VAT?
The increase appears to hit smaller charities hardest-a point made by both the House of Commons Library and the Charity Tax Group. They say that smaller charities such as those with an income of less than £30 million will be hit, as VAT currently accounts for some 3.6% of their income, compared with 2.3% for larger organisations with an income of more than £30 million. In other words, this VAT increase will create a greater gulf between bigger charities and smaller charities. That is obviously a concern because, as my hon. Friend the Member for Wrexham (Ian Lucas) pointed out, there is a big push on at the moment to ensure not a narrower role but a wider role for smaller charities in delivering public services.
Stephen Williams: We will all agree that the whole area of charity taxation needs serious examination in this debate, and perhaps the Government will review it in future. However, perhaps the right hon. Gentleman will remind us whether, in the 13 years in which the Labour Government were in office, they exempted the charities from the proposed increase in national insurance. In fact, it cost charities a lot. During consideration in Committee of what became the Finance (No. 2) Act 2005-it was the first Finance Bill Committee I served on-charities complained a lot about the Labour Government restricting the scope of gift aid. They did not help charities out then. When income tax was reduced, they did not allow charities to recover the difference. This enthusiasm for protecting charities from tax changes is therefore somewhat new-found on Labour's part.
Mr Byrne: With respect, the hon. Gentleman is making a partisan point in a quite unfair way. I was about to make a point on which I hope there is consensus in the Committee. We all now know what the impact of the VAT increase on charities will be, and all of us will be worried about the impact we foresee on smaller charities. The truth is that there is strong cross-party consensus on the need to support charities further.
"Britain has a proud and long-standing charitable tradition, and we are convinced that the voluntary sector should play a major part in our civic renewal."
"introduce a fair deal on grants to give voluntary sector organisations more stability and allow them to earn a competitive return for providing public services."
"operate at a single rate of 23%-giving more money to charity while closing down a loophole for higher rate tax payers."
Labour Members are very proud of our record in supporting the third sector in this country. Over the past 10 years, we doubled the amount of public sector income going to the third sector and Britain's charities, from £5.5 billion to more than £11 billion. So although we had not finished the job of sorting out VAT, what we had delivered was a doubling of income going into the charitable sector in this country. That was the biggest single increase in income going to the third sector in this country almost on record. In the past 10 years that meant that the sector was stronger in taking on public service delivery contracts. Indeed, those contracts with the third sector doubled since 2000 and by the time Labour left office there were about 60,000 social enterprises, worth £8.5 billion. We are proud of our record.
Mark Durkan: My right hon. Friend referred to the level of funding that the Labour Government achieved for the third sector. What does he think will be the implications for that funding of the announcements to be made on 20 October? Should not the Committee be considering the impact on charities of the spending decisions that are coming down the tracks, as well as the taxation impact?
Mr Byrne: As ever, the hon. Gentleman is on the money. If departmental cuts, particularly to the Cabinet Office, are between 25% and 40%, the impact on public funding for third sector organisations in this country will be devastating. We can all see this coming ahead of us-we can all see this train coming-so these amendments seek to ensure that a report is set out by the Treasury before the VAT hike is introduced. I hope that a bit of good old-fashioned common sense will prevail this evening, and that we will be able to agree to them.
I understand that this measure is being introduced at haste. It is perfectly plausible to suggest that the Treasury did not foresee it, and there is something we can all do this evening to ensure that charities are protected from unintended consequences. We ask the most unreasonable things of Governments-we cannot expect them to have the power of omniscience-but we can agree this measure in a way that protects charities.
Tony Cunningham (Workington) (Lab): May I tell my right hon. Friend just how delighted I am that he has raised the issue of mountain rescue teams in amendment 58? The emergency services are often praised for the tremendous work that they do, but the mountain rescue teams are a sort of forgotten emergency service. No better example of this could be given than what happened last November during the floods, when the Cockermouth mountain rescue team saved people's lives and did an incredible job.
Mr Byrne: My hon. Friend has pretty much made my argument for me. All of us know what an extraordinary service mountain rescue provides. Of course these charities confront a particular problem when using gift aid to provide compensation for the kind of VAT hit that they are about to take, because when someone is collecting money through tins it is sometimes difficult to collect gift aid on the contributions that they receive. So amendment 58 seeks to extend protection to mountain rescue services in England and Wales by, again, asking the Treasury to prepare a report on the impact of the VAT hike on their services. These are common-sense amendments, which draw on a strong cross-party consensus that has developed over the past few years. I hope that the Government are able to support them.
Ian Lucas: I was motivated to highlight this particular area because of the importance of the voluntary sector in my constituency. I suppose that I am not at all alone in having a vibrant and important sector in my constituency. We constantly hear of the good work of the charitable sector from hon. Members from all parts of the House.
We hear of the good work of the charitable sector from the Prime Minister in particular. He spent much time before the general election talking about the big society and how he would want to extend the work of the voluntary and charitable sector if he had the opportunity to move into government. It was therefore with profound distress-but no little surprise-that when the Budget came, I saw the VAT rise that inevitably follows the election of a Conservative Government. Of course, that rise affects the charities in our constituencies. I want to talk about two of them briefly in the context of the amendments.
The first is called Chariotts, a charity in the Wrexham constituency that transports individuals who have disabilities. To put it simply, those individuals pay the fares, and the effect of the VAT increase on that charity is that, as it is becoming registrable for VAT, it will have to charge VAT to its clients. Those individuals, who receive disability benefits, will be asked to pay more to obtain the same service from the charity. That is causing the charity some distress and I have spoken to its representatives about the issue.
Ian Lucas: The 2.5% VAT increase that Government Members will march through the Lobby to support will mean that those individuals, who are receiving disability benefits, will have to pay more money from their own pockets to the Government. I understand the hon. Gentleman's comment, but the point is that more money is being paid by individuals who receive disability benefits because of the decisions of the Liberal Democrats and the Conservatives.
Ian Lucas: I think that I should wait to see the position in due course. I have no doubt that as a result of the decisions of the Government parties my constituents, particularly those on lower incomes, will be worse off.
Additional burdens will be imposed on the most vulnerable in our communities. That was not something we heard from the Conservatives before the general election-they did not say that they were going to increase VAT, although I always expected them to do it. When the Liberal Democrats sit there supporting the Conservative-Liberal Democrat Government who are increasing VAT, it fills me with disdain because, of course, they campaigned against that increase in VAT. Their councillors in Wrexham go along to events such as those with Chariotts, which is an organisation that they support locally, yet the Liberal Democrats will impose a financial burden on that charity as a result of their support for this change.
Phil Wilson (Sedgefield) (Lab): It is the same in Sedgefield. There is a very small charity that I visited on Friday, called the LADDER centre, in Ferryhill. A simple £200 or £300 increase in the VAT it has to pay could see it go under. This problem obviously exists not just in my hon. Friend's constituency but across the country.
Ian Lucas: These charities are very important across the country. Of course, another charity in my constituency that I have approached about this matter-the Nightingale House hospice-has said that as a result of the Budget it will have to find £10,000 to care for the sick people whom it looks after. That is the consequence of the Budget that is being supported by the Liberal Democrats and the Conservatives. This is a specific aspect of that Budget: the penalty that is being imposed on charitable organisations that the parties opposite purport to support.
Politics is all about choices. That is what we are paid to come here to make. The choices that a party makes when it gets into a position of power tell us a great deal about that party. The Liberal Democrats and the Conservatives are choosing to lower the rate of corporation tax, which will apply to the banks that we were talking about last night. While we were having that debate, the Financial Secretary to the Treasury was elsewhere delivering an after-dinner speech, but he should have been here, telling the House about what he is proposing in respect of a banking levy.
The Liberal Democrats and the Conservatives support a cut in corporation tax for Barclays bank, the Royal Bank of Scotland and all the companies that have benefited from the support that the Government have given. They also support a VAT increase that they know will inflict financial pain on charities that are committed to serving the most vulnerable in our communities. Those parties can make those choices because they are in government, but people will remember. We expect such choices from the Conservatives, but perhaps we do not expect them from the Liberal Democrats.
If the Conservatives and the Liberal Democrats make those choices, we will make sure that all our constituents know where they stand. We all know that organisations such as hospices are among the most valued organisations in our communities-that is why the Prime Minister talks about the third, or voluntary, sector. The Government parties should be aware that what they are doing tonight is inflicting financial pain on those organisations, and they should be ashamed.
Mr Gauke: Amendments 35 to 37 aim to remove supplies to charities for non-business purposes from the scope of the VAT increase. Similarly, amendment 56 would mean that the increase would apply only to supplies costing £25,000 or more, and that it would not apply to purchases made by charities for renovations of property or of fuel sold to residents of rural locations. Amendment 57 would add supplies to public authorities to the list to which the increase will not apply and is a little more specific about the type of renovations that would be excluded from the increase.
Both those groups of amendments would be illegal under EU law in so far as they would effectively create further reduced rates of VAT in categories that are not on the list of permitted reduced rates. They would also impose a considerable administrative burden on the businesses supplying the goods in question, as they would mean that any business supplying goods or services would have to ascertain first whether a customer is a charity and, secondly, the use to which the customer would put those goods or services. In the light of the customer's answer to those questions, the VAT rate would be either 17.5 or 20%, unless the supplies were eligible for the reduced rate or the zero rate.
Mr Gauke: Before I do, I note the spirit in which my hon. Friend the Member for St Ives (Andrew George) tabled his amendments, in an attempt to probe this matter, so I do not criticise him. He has acknowledged that his proposals were not technically watertight, but they none the less enabled us to debate this matter.
Bob Russell: Can the Minister tell me where the coalition agreement says that charities will be disadvantaged by Government policies? Can he explain what percentage of the total increase in VAT will be borne by the charitable sector?
We are looking to encourage charitable giving. However, the essential problem-I am sorry to have to keep coming back to this central point-is that we have a crisis in the public finances. We know that the measure is unwelcome, and it is regrettable that charities, among other groups, will have to pay more in tax and will not be able to recover all of it. There is not a great deal of flexibility in the VAT system. I have to come back to the point that was rightly made by my hon. Friend the Member for Bristol West (Stephen Williams). Employers' national insurance contributions are also going to hit charities hard. Many small charities in my constituency have raised that particular concern, but the fundamental issue is the state of the public finances and the need to address it.
The primary point that I raised was the impact on charities, which is dealt with by proposed subsection (1A)(a) in amendment 57. The Exchequer
Secretary said that some of the impact would be ameliorated through gift aid, but he needs to acknowledge that larger charities with the necessary bureaucracy can take advantage of gift aid, but smaller ones more often than not cannot. A number of other charities equally cannot take advantage of it. Is there anything that he can say about ways in which the impact of the VAT rise on charities can be ameliorated?
Mr Gauke: We are looking at what we can do to simplify the gift aid system so that charities of all sizes can make use of it. Some smaller charities do well out of gift aid. We want to do all that we can to strengthen charities, but the fundamental fact is that VAT is the right tax in these circumstances to raise additional revenue. There are restrictions within the VAT system as to what we can do to protect charities from that tax, but the Government as a whole remain committed to assisting charities as much as possible.
I should like to take the opportunity to respond to the comments made by the hon. Member for Bermondsey and Old Southwark (Simon Hughes) and my hon. Friend the Member for St Ives about the tension between renovation and new build and the incentives for them. I know that the Liberal Democrats have campaigned consistently on that matter for several years. As a Government we will continue to keep it under review. They make their case well.
I am aware that mountain rescue services have drawn the attention of a number of hon. Members to the case for exempting their vehicles from vehicle excise duty or extending their reliefs from VAT. I am sure that all of us in the House have huge respect and admiration for the work of the mountain rescue services and recognise the valuable contribution that they make to the safety of those enjoying the countryside. The case is well understood on both sides of the House, but as the Committee will no doubt be aware, mountain rescue teams, like other search and rescue charities, benefit from VAT reliefs on some but not all goods and services that they purchase. Such charities are also able to purchase free of VAT medicines, medical equipment including first aid kits, splints and stretchers, ambulances and certain vehicles designed to transport disabled people.
The mountain rescue teams also benefit from other VAT zero rates that apply to all charities. All of those zero rates are derogations from the normal EU VAT rules and represent benefits not enjoyed by charities in other member states. The mountain rescue teams estimate that they still pay something like £200,000 in irrecoverable VAT per year. However, it is well understood that there is no scope within the framework of long-standing EU VAT law for relieving more of their purchases from VAT, which is why the previous Government did not do so, despite receiving representations on a number of occasions. It would, therefore, serve no useful purpose to produce a report on the impact of the VAT increase on the service. It is argued that there could be a refund for the VAT costs, which is a public expenditure choice that I am sure the shadow Chief Secretary-formerly the Chief Secretary-was conscious of in his previous post, and we know what happened then.
Where there's a will, there's way. The Treasury could find a way of offsetting the cost for the mountain rescue services, just as the Labour Government
found a way of offsetting the VAT that would have been put on poppies if they had continued with a particular piece of legislation.
Andrew George: We have had a very good debate. It has certainly been well worth probing issues on charities, public authorities and building renovation. I particularly appreciated the contribution of the shadow Chief Secretary, which was less partisan than in the past and added much to the debate and consideration of the issues.
I apologise to the right hon. Member for Cardiff South and Penarth (Alun Michael). During his two interventions on me I failed to acknowledge his significant contribution to the voluntary sector over many years. I should have taken the opportunity to acknowledge his sterling work for the third sector and the voluntary sector.
The hon. Member for Wrexham (Ian Lucas) added a great deal in terms of some of the material he referred to, particularly from his constituency, but his speech was disappointingly partisan. I am rather surprised by that on the day when Lord Mandelson let the cat out of the bag on Labour's defence that they would not have introduced a VAT increase after the election. It must be rather difficult for Labour Members to swallow this evening, given all the butter that is not melting in their mouths.
The Exchequer Secretary said that he will keep a number of issues under review, which is encouraging. I shall certainly be pressing him and Treasury Ministers to ensure that they do so for the three issues that have been raised in the debate. As I indicated earlier, I intended the amendments to be probing, as they have been, so I beg to ask leave to withdraw the amendment.
'Subject to subsection (3A) below,'.- (Mr Byrne.)
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