“if these costs were not so damaging it could be laughable.”
Does my right hon. Friend agree?
Mr Hanson: I do agree with my hon. Friend’s concerns.
Time is pressing, so I will move on. I know that we have a lot of time, but I want to ensure that my right hon. and hon. Friends have an opportunity to speak.
Ian Lucas: There is another sector that is being hit extremely hard by the VAT increase—the third sector, the charitable sector. Government Members regularly profess to support hospices, but hospices in my constituency are having to raise more money to pay the extra costs that that lot have imposed upon them.
Mr Hanson: My hon. Friend is absolutely right. It is not just charities and the voluntary sector that are affected, but Welsh and other universities. In Wales alone, there will be £3.5 million extra VAT for universities to pay this year. Housing associations are affected, and the chief executives of the National Housing Federation and of the Homes and Communities Agency have said that the rise will cost an additional half a million a year in VAT.
Roger Williams (Brecon and Radnorshire) (LD): Does the right hon. Gentleman agree that the problem for charities, which the hon. Member for Wrexham (Ian Lucas) mentioned, would exist whether VAT was 17.5% or 20%? The Labour party did not attend to the problem when it was in government.
Mr Hanson: Not just Labour MPs are concerned about this increase. The hon. Member for Colchester (Bob Russell), a Lib Dem MP, said in a debate last year that he wants to help charities that have been hit by this move.
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We all accept that VAT is a difficult issue for charities, but it has been made more difficult by an extra 2.5% increase at a time of squeezed budgets, and when the Government are asking more of the charitable sector by cutting public sector spending generally. That issue of great concern was highlighted by my hon. Friend the Member for Wrexham (Ian Lucas).
Nic Dakin: Further education and sixth-form colleges will also be hit by that additional cost, but in this very Bill, the Government are taking measures to protect academies from the same sort of penalty. Does my right hon. Friend think that that is a little rich?
Mr Hanson: I do. My hon. Friend spent many a happy hour in Committee discussing those very issues.
If the Government are not interested in master builders and the voluntary sector, and if they are not interested in the impact on public sector operations such as hospitals, schools and universities, perhaps they will listen to the British Retail Consortium, which states:
“Increasing the VAT rate to 20 per cent would cost 163,000 jobs over four years and reduce consumer spending by £3.6 billion over the same period.”
Only today, there were job losses at Jane Norman. There have been job losses at Habitat, Focus DIY, HMV, Mothercare, Comet and HomeForm.
Mr Hanson: There have also been job losses at Borders. There have been job losses across the board in the retail sector as a result of the impact of the VAT increase.
Stephen Williams: I thought I heard the right hon. Gentleman say Borders, but Borders went bust under the previous Labour Government. Would he like to retract that?
Chris Ruane: I said Thorntons.
Mr Hanson: I misheard my hon. Friend the Member for Vale of Clwyd (Chris Ruane). I thought he said Borders, but he said Thorntons, which has today lost 10,000 jobs. It may be of some interest to the hon. Member for Bristol West (Stephen Williams) that those jobs have been hit, as has the confidence in the retail sector, by VAT increases.
My hon. Friend the Member for Wrexham mentioned charities. Earlier this year, Sue Ryder, the charity, stated:
“Today's rise in VAT to 20% will cut the amount of social care that charities can deliver”.
What is the impact on fuel of the VAT rise? People with a typical family car will pay £1.35 more to fill up their tank, as will people moving goods around the country. The VAT increase has hit the retail sector and we see job losses across the board, but there is also concern from the tourism sector. Just recently, on 6 June, the British Hospitality Association stated that the high level of UK VAT is a deterrent to tourism growth. Once again, those are the impacts on growth, jobs and public services.
Mark Durkan (Foyle) (SDLP):
My right hon. Friend refers to the impact of the higher rate of VAT on the tourism sector. Of course, in Ireland, from next week for 18 months, VAT in the tourism sector will be reduced
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to 9%. It has already been reduced to 7% in Germany and 5.5% in France. Is that an argument for taking a more sector-targeted approach to VAT reductions? Will the assessment proposed in new clause 10 allow for consideration to be given to a more articulate way of applying VAT, rather than having general, standard reductions across the board on all products, regardless of whether they are imports or the products of home businesses?
Mr Hanson: If my hon. Friend looks at new clause 10, he will see that it calls for a general review of VAT and the impact on the economy. Out of that review could come, for example, a temporary reduction to 17.5%, as was called for by my right hon. Friend the Member for Morley and Outwood (Ed Balls), or there could be changes for certain sectors. The review could look at a range of issues to assess the impact of the increase on growth, jobs and living standards.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): Given the arguments that the right hon. Gentleman is making, how does he intend to vote on the new clause moved by the hon. Member for Caernarfon?
12 midnight
Mr Hanson: The hon. Member for Caernarfon has not moved a new clause—the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) moved it. However, we will not be supporting it because it does not give an end date for the potential VAT reduction. It would be a permanent reduction. We want a review of the impact of VAT on business, jobs and living standards.
Mr Gauke: I am trying to understand the Labour party’s position. If it believed in the policy announced by the shadow Chancellor a week or so ago, it would want first to reduce VAT, and then to make a decision on when to increase it. I do not understand, therefore, why it is not supporting the new clause, which takes that first step—it does what the Labour party want to do.
Mr Hanson: I will try again, slowly. The new clause calls for a permanent cut in VAT to 17.5%. It does not do what my right hon. Friend the Member for Morley and Outwood wishes to do—what we voted on last Tuesday—which is to implement a temporary cut in VAT until we secure strong growth.
Christopher Pincher: Will the right hon. Gentleman give way?
Mr Hanson: In a moment. The new clause does not do what we said we would do, which is implement a temporary reduction. We have tried, through new clause 10, to ensure that we have a review of all the issues I have mentioned—of tourism, business, jobs and families—so that we can come to conclusions about sectoral reductions and a temporary reduction to help employment.
Jonathan Edwards: May I clarify my position? I have a note from the House of Commons Library to me:
“NC9 finds an alternative way of doing the same thing as NC6 (i.e. decreasing the rate of VAT), only on an exclusively temporary basis. It does this by means of the Economic Regulator, which is a mechanism that allows for changing the rate of excise duties like VAT on a temporary basis without having to use primary legislation.”
Surely, it cannot be clearer than that.
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Mr Hanson: Unfortunately, we are making legislation, not just research notes, and unfortunately what the hon. Gentleman’s new clause states is not what he believes he said just now.
Christopher Pincher: The right hon. Gentleman says that new clause 10 will make the VAT cut permanent. Is he saying, therefore, that there will never be another Budget before this House? Not only does he seem to have no policy, he does not understand parliamentary procedure.
Mr Hanson: With due respect to the hon. Gentleman, you and I, Mr Deputy Speaker, have been here 19 years and three months. I have been here long enough to understand a few matters of parliamentary procedure. The hon. Gentleman needs to go back to Tamworth and explain to his constituents why, by increasing VAT, he is adding £450 to people’s annual VAT bill; why he is hitting retail sales and retail shops in his constituency; why he is impacting on businesses in his constituency; and why the VAT increase in his constituency will put up the cost of the health service, education, housing and jobs. He needs to reflect on those issues as part of this debate.
In conclusion, we have today an opportunity to vote for new clause 10, which would give us a chance to consider the impact of VAT, to come to conclusions on the points I have made today and to ensure that we can properly assess the best way to implement our VAT reduction so that it helps create jobs, build growth and not stifle our economy. This Conservative-Liberal Democrat Government have not only broken their promises on VAT to the electorate, but put at risk growth, jobs and family living standards. Most abominably of all, however, with this rise they have hit the poorest hardest. We have consistently opposed the rise to 20%, and we want it reviewed. We ask hon. Members to vote for new clause 10 tonight, and I look forward to my right hon. and hon. Friends joining me in the Lobby at the end of the debate.
Catherine McKinnell (Newcastle upon Tyne North) (Lab): I want to outline my support for new clause 10, and for reviewing the impact of VAT within three months of passing the Bill. The increase in VAT is having a real impact on the spending power of people in my constituency, many of whom are really feeling the pinch of inflation, pay freezes, and rising energy and food bills, and for thousands of people across the north-east, this all comes at a time when many of them are facing redundancy.
The previous Labour Government’s decision to reduce VAT temporarily to 15% was judged by the independent Institute for Fiscal Studies to be an effective stimulus, putting additional money into people’s pockets, and helping to support an increase in consumer confidence, a return to economic growth and a fall in unemployment, all of which are needed now. Of course we must reduce the deficit, but I do not accept that the right way to do so is on such a scale and at such an intensity that ideological deficit reduction is delivered at the expense of economic growth and job creation. Indeed, there is widespread and well founded concern that this will only make it harder to get the deficit down in the long term. Finding ways to kick-start economic growth must therefore be a priority. It is therefore vital that the impact of VAT be kept under review.
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Finding a means of kick-starting growth is vital, particularly for regions such as the north-east, where I fear we risk a lost generation of young people if new economic and employment opportunities are not created, and created quickly. A key concern in my region remains the level of youth unemployment, with around 19% of 16 to 24-year-olds in the north-east not in education, employment or training, compared with the national rate of around 15%. Of particular concern is the fact that over the last 12 months the north-east has seen a 10% increase in the number of 18 to 24-year-olds claiming jobseeker’s allowance. Only Northern Ireland, Scotland and London have also experienced such rises over the same period, and then only to a maximum of 4%. With measures such as the previous Government’s future jobs fund axed by the coalition and nothing lined up to take its place specifically to support the long-term unemployed into work, we need to consider as many steps as possible to kick-start economic growth and increase employment opportunities for young people. Keeping VAT under review is vital to ensuring that.
The coalition’s decision to increase VAT to 20% in January has hit many businesses hard, particularly as that VAT hike helped to push fuel prices up to record levels. Let me take just one example from my constituency. The owner of a small electrical services company in Gosforth has made clear to me the impact of high fuel prices on his firm, which he says have hit the small business sector hardest. From its base in Newcastle upon Tyne North, his company carries out most aspects of domestic electrical work and small commercial work, travelling across the Tyneside, Northumberland and Durham areas.
Gordon Birtwistle (Burnley) (LD): Will the hon. Lady give way?
Catherine McKinnell: I will give way in one moment.
The owner of the company has an expanding network of clients from the private and voluntary sectors, and he would therefore like to be able to take on his first employees within the next 12 months. However, he has said that the cost of fuel and running a second van will be a significant influence on whether he decides to take on new staff, which he would like to do, thereby doing his bit to help the economy recover. That is just one example of a local company in my constituency really feeling the impact of high fuel prices, which are hugely affected by the rise in VAT, but there are others. They include the small driving school in Lemington that saw fuel costs rise by £20 a week over the last year, the self-employed businessman from Fawdon whose work requires him to travel around 10,000 miles a year, and the young man from Gosforth who set up a Facebook page on the issue and has 475,000 supporters. All those companies are affected by the rise in VAT. The Government must make a commitment to keep it under review, to ensure that all steps are taken to help businesses survive and thrive through these difficult times, and to support those that wish to expand and create new employment opportunities to be able to do so.
Chris Ruane: You’re doing their dirty work! Look! There’s three times as many of them—
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Mr Deputy Speaker (Mr Nigel Evans): Order. We cannot have any shouting. We want to listen to Catherine McKinnell.
Catherine McKinnell: Thank you, Mr Deputy Speaker. I will give way to one of my friends from the north-east, who I am sure has something relevant to say.
Ian Swales: As a fellow north-east Member, I congratulate the hon. Lady on her speech. I believe that the previous VAT cut cost £12 billion. She makes a persuasive case for the need to stimulate the economy. Does she think that borrowing £12 billion and then cutting VAT is the best option from all the choices available?
Catherine McKinnell: The fact is that the current rate of 20% is hurting, and it is not working. Growth has stalled. We need to return to growth, particularly in the north-east, and I would have thought that the hon. Gentleman would support such a move.
A sector that has faced particular difficulties over recent months and years is the construction industry. It is thought that one in five of the firms going into administration are from that sector, and research recently undertaken by the Financial Times has found that construction orders have fallen by 40% in the past 12 months. That is an alarming figure. It is really worrying, when we consider that construction makes up around 10% of the UK economy, and that some 80% of the materials used by the industry are procured from within the UK, creating an economic stimulus and jobs in other sectors.
The construction industry is one clear example of how public spending can support private sector growth and jobs. Indeed, it is estimated that every £1 spent on construction leads to an increase in gross domestic product of nearly £3 and stimulates growth elsewhere in the economy worth nearly £2. The maths is simple. It is widely accepted that coalition decisions to cancel projects such as Labour’s Building Schools for the Future programme, to cut the housing and regeneration budget by 70%, to end the HomeBuy Direct scheme, and to scrap regional spatial strategies, are having, and will continue to have, a seriously detrimental effect on the construction sector.
The coalition’s VAT rise is also having a considerable adverse impact on many small and medium-sized construction firms, particularly when combined with the draconian cuts that the Government are imposing on public spending. Indeed, at the time of the VAT rise the Federation of Master Builders—an organisation to be taken very seriously—expressed its concern that 11,400 jobs would be lost in the construction sector alone over the next decade as a direct result of the coalition’s decision to hike VAT to 20%. The impact of VAT must be kept under review.
Household income in the north-east is the lowest in England, and a temporary reduction in VAT would have a positive impact on the spending power of people living in my city and region, helping to support local businesses, local economic growth and local jobs. Such a reduction could not come at a more apposite time, given that my region is facing the policies of what Kevin Rowan, the regional secretary of the Northern TUC, has recently described as a “profoundly anti-Northern Government”.
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That is a description I would agree with, in the light of the impact of some of the coalition’s policies highlighted by Mr Rowan. They include the abolition of One North East and the planned sale of its assets to finance national Government administration—something that is not happening in London. Furthermore, job creation is simply not keeping up with job losses, with up to 19 jobseekers applying for every vacancy in some areas of the region. The north has the highest unemployment rates in the UK, and it is seeing cuts in disability benefits that will have a disproportionate impact on former industrial heartlands, as well as cuts in tax credits, the abolition of area-based grants and local government cuts significantly higher than those in many councils in the south-east. It is for those reasons that I support the proposal for the Government to undertake an assessment of the impact on UK growth of the rise in the rate of VAT.
John Hemming: Well, here we are: the Opposition have said that they really hate the idea of having VAT at 20%, and that that is a dreadful proposal. What are they proposing instead? They are proposing a review.
Thomas Docherty: Can the hon. Gentleman remind me whether he agreed with his party leader when he said, during the election campaign, that a VAT rise would hit families the hardest?
John Hemming: My right hon. Friend the Member for Twickenham (Vince Cable) was quite clear when he said that the party did not rule out an increase in VAT, when he was asked that specific question—[Hon. Members: “Oh!”] The then Chancellor supported an increase in VAT to 19%, and the present Opposition now support a long-term VAT rate of 20%. The reason why they will not support new clause 9 is that the change it proposes is not temporary but permanent. Labour Members cannot criticise us for accepting a long-term VAT rate of 20% if they want the same long-term rate themselves. There is an argument about whether the stimulus that would, admittedly, result from a temporary cut in VAT would be in the long-term interests of the country, but it is a complex one. However, it is clear that we need to keep the deficit under control.
We have heard criticism from the Opposition today that the Office for Budget Responsibility has indicated that we might be borrowing more money than was originally forecast. The Opposition criticise us for the fact that the OBR forecasts higher borrowing. The Opposition’s solution, however, is even higher borrowing. They identify a problem and then put forward a policy proposal to make that problem worse. It is an absurd situation.
12.15 am
The real problem that economies face, as we see with the situation in Greece, is that as the deficit goes up, the people lending the country money to keep it going become increasingly concerned and the interest rate goes up, so it is not just the amount of interest on the amount of deficit in each year that goes up, as the rate of interest goes up, too. That is why people end up in the state that Greece has ended up in.
Ian Lucas:
The hon. Gentleman ought to have listened to the debate earlier, particularly to the very good speech by my hon. Friend the Member for Newcastle
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upon Tyne North (Catherine McKinnell), who explained that for every pound that is spent in the construction sector, £3 is injected into the economy. That would lead to three times as much being put into the economy for every pound spent in the construction sector. That means we should encourage that sector, not decimate it as the Conservatives are doing as we speak.
John Hemming: We should remember that VAT does not apply. I declare an interest, as a VAT-registered person. People who understand how VAT works will know that people who charge VAT can reclaim it on their inputs. We have to look at the details. On the hon. Gentleman’s further point, yes, there is an economic multiplier that has an effect. As demand is increased, there is a multiplier effect. At the same time, we have to look at the long-term effect on the deficit, the debt and the interest paid. As interest rates go up, wider damage is done to the whole of society.
It is true that in an ideal world we would not have higher rates of VAT. In an ideal world everything would be nice, and there would no problems and no difficult decisions to take. We have to get a balance. It is very pleasing to see that the official Opposition now accept that VAT should be 20% in the long term.
Clive Efford: There used to be a time when the hon. Gentleman was fond of quoting the Institute for Fiscal Studies, which called the VAT cut “an effective stimulus”. As for the construction industry, does he not recognise the figures showing a 19% increase in the number of business failures in the construction industry in the first three months of this year—since the increase was imposed?
John Hemming: There is no VAT on new build. The hon. Gentleman’s party believes that the VAT rate should be 20% in the long term; I thank him for agreeing with us about that.
The Government, essentially, have to bring the deficit under control to keep interest rates under control—and that is what we are doing.
Mr Deputy Speaker (Mr Nigel Evans): Is the hon. Member giving way, or has he finished?
John Hemming: I thought I had finished.
Mr Deputy Speaker: That is good enough for me.
Nia Griffith: I am delighted to be given this opportunity to speak, perhaps a little sooner than anticipated. I shall speak to new clause 10 and I specifically remind Members that it is about having an assessment of the impact of the VAT rate on UK economic growth. That is the area on which I shall focus; it is what we need to talk about if we want to get this country back on its feet.
We are not asking for a knee-jerk reaction. We recognise that there is a complex relationship between the various different fiscal measures that can be taken—between VAT and all the other types of fiscal measures. We also recognise the importance of a changing environment, as events elsewhere might affect our ability to export, for example, and economic events in different countries will impact on our economy in all sorts of ways.
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Let us look at what has happened recently. We have massive inflation and businesses are having real difficulty. They are being badly squeezed. They are experiencing rising costs, rising costs and more rising costs, and they are having to make difficult judgments about how many of those costs they can pass on to consumers before they begin losing sales. Their difficulties have been compounded by the fact that they have had to contend with a higher VAT rate since January. They are making calculations daily. The costs of their raw materials are changing constantly. They must keep asking themselves, “What must we do in order to keep afloat?”, but the problem is, of course, that many of them are going under.
Gordon Birtwistle: Will the hon. Lady give way?
Nia Griffith: I will if the hon. Gentleman is going to ask a sensible question.
Gordon Birtwistle: Does the hon. Lady agree that businesses—[Interruption.] I was asking the hon. Lady, not the animal in front of her. Does the hon. Lady agree that businesses can reclaim the VAT that they are charged?
Nia Griffith: I fully understand that businesses reclaim the VAT, but the consumer purchases the end product for a composite price that reflects everything that has been done to produce the thing in the first place, as well as the transport costs—that was explained by my hon. Friend the Member for Chesterfield (Toby Perkins)—and, of course, the VAT. The customer pays the VAT in the end, but the business has already been affected by the rise in costs that it is incurring, which do not include VAT. The price of raw materials, particularly fuel, has risen, and every business is being squeezed to the limit. Every penny counts, and businesses are asking themselves, “At what point can I put the price up? At what point does the purchaser not buy?”
Many of my hon. Friends have mentioned the impact on hard-pressed families, and they have indeed been hit very hard. The hon. Member for Redcar (Ian Swales) recited a long list of goods that do not attract VAT. Was he suggesting that every middle-income and lower-income family should exist solely on food and children’s clothing? Has he not thought of the numerous household items—
Stephen Williams: Will the hon. Lady give way?
Nia Griffith: I will, on that point.
Stephen Williams: The hon. Lady’s Front-Bench colleague, the right hon. Member for Delyn (Mr Hanson), said that there would be a £450 increase per “hard-pressed family”, if I may use her phrase. That means that families would have to spend £18,000 a year on VATable items—not VAT-exempt or zero-rateable items. Can the hon. Lady give us an example of the sort of items on which those hard-pressed families would spend £18,000 a year?
Nia Griffith: When we arrived at the £450 figure, we were taking account of the total impact of all the tax changes introduced in the emergency Budget last June. However, if Members look around their bathrooms and kitchens, they will see numerous items that do not last for ever and need to be repaired. For example, adults will need to replace some items of clothing.
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Catherine McKinnell: Does my hon. Friend share my confusion about the fact that during the election the Liberal Democrats campaigned against the Tory VAT bombshell, yet tonight they seem to be the only Members present who are defending the Tories’ increase in VAT?
Nia Griffith: I find that extraordinary, and I also find it extraordinary that the Tories seem to have so little comprehension of the impact of the increase. As I have said, many household items need to be replaced.
Andrew Gwynne: Is not the real purpose of new clause 10 to enable us to assess whether the impact of the VAT increase is indeed returning growth to the economy, and does not the evidence so far suggest that the economy is going into reverse as a result of the Government’s measures?
Nia Griffith: Absolutely. I shall say more about that shortly.
Mr Hanson: My hon. Friend, like myself, is a Welsh Member of Parliament. May I draw her attention to a press release last year entitled “Welsh Lib Dem MPs want VAT rise impact to be assessed”. The hon. Member for Brecon and Radnorshire (Roger Williams) said:
“we are worried about the proposed increase in VAT. … We need to carry out this work so that we can lessen the impact of any increase in VAT.”
The hon. Gentleman said that they were
“particularly concerned about the impact on the voluntary sector”
and on hard-pressed rural areas.
Nia Griffith: That is an extraordinary statement, especially as I can remember the most surreal experience of being in a studio in Cardiff and the hon. Member for Brecon and Radnorshire (Roger Williams) popping up on a screen from some distant place to defend the increase in VAT. So what is the position of the Liberal Democrats? I really do not know. One minute they say one thing about an assessment, the next minute they pop up on a screen defending to the hilt every statement in the Budget last June. I do not know what the position of Welsh Liberal Democrat Members is.
Albert Owen (Ynys Môn) (Lab): My hon. Friend is making a strong point about small businesses being unable to absorb the VAT increase. She asked about the position of the Liberal Democrats. They are on the wrong side of the argument and they are here tonight to defend the Tory rise in VAT. It is an absolute disgrace, and Welsh businesses and businesses throughout the UK will punish them at the next election.
Nia Griffith: My hon. Friend is right.
Let us move on from the small items such as mobile phone bills and the VAT on them—it might be someone’s only phone if they do not have a landline. Let us move to the other end of the scale and what are called the big ticket purchases such as replacing a car or refurbishing a kitchen. They are things that people do not have to do now, but they may choose to do; perhaps they intend to do them in the next few years. The Labour Government introduced the car scrappage scheme, which spurred on people who were thinking of replacing their car in the next couple of years to bring that purchase forward. It
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meant that money that was available, which some people had put by in savings, was fed into the economy and made a difference.
Mrs Madeleine Moon (Bridgend) (Lab): Does my hon. Friend remember that the car scrappage scheme was particularly effective in Wales, where the Ford factory found that the majority of cars bought under the scheme were Fords. So jobs were kept in Wales? The Welsh Liberal Democrats want to take those jobs away from Welsh workers.
Nia Griffith: The whole point of an active Government who take an interest in re-igniting the economy was absolutely that—to create jobs and ensure wealth creation so that we would be in a better position to pay back quickly—
Ian Swales: Can the hon. Lady confirm that she is now proposing a cut in VAT and car scrappage schemes and other measures to stimulate the economy? Or is she offering a choice?
Nia Griffith: I am asking about the Government’s growth strategies. I am trying to explain by giving some examples of how Governments can stimulate the economy and make a difference. They can choose to kick-start the economy or to allow it to go spiralling down and unemployment to increase. These are active choices that a Government can make. We are asking in our new clause for a proper assessment of the effect of the increase in VAT on what is happening now in the economy.
Andrew Gwynne: My hon. Friend has been generous in giving way. She talks about the Government’s growth strategy. It appears to me that they have neither a coherent strategy nor, apparently, growth.
Nia Griffith: That is precisely the problem. In spring 2010 we were beginning to come out of the recession, the economy was growing, inflation was low, and unemployment was coming down. Under Labour’s plan, the economy was set to grow strongly. In fact, as more people were getting back into work, borrowing ended up £21 billion lower last year than had been forecast.
Bill Esterson: I am sure that my hon. Friend is aware that the Treasury is set to borrow £46 billion more than it planned last autumn as a result of slower growth. I am sure that she agrees that without growth the deficit will continue to rise. Surely that is why we are right in the new clause to call for an investigation of the impact of the measures on growth. Clearly, the Liberal Democrats do not understand the impact of the rise in VAT.
12.30 am
Nia Griffith:
That is precisely the point. There is a huge contrast between an economy that was growing and doing better than the forecasts had predicted, and a situation where there has been no growth since last October. As my hon. Friend pointed out, the Office for Budget Responsibility now predicts that the Government will have to borrow £46 billion more over the coming years than was forecast last autumn after the spending review. Worse, they are failing to get Britain back to
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work, which is probably pushing up the benefits bill this Parliament by more than £12 billion. That not only makes the deficit worse, but makes the lives of the people involved infinitely more miserable.
Clive Efford: My hon. Friend cannot have failed to notice that only one Back-Bench Conservative Member is present—
Chris Ruane: No, he is a Parliamentary Private Secretary.
Clive Efford: Yes, he is a PPS. By contrast, nearly a dozen Liberal Democrat Members have been present. That is nearly as many Liberal MPs as positions their party has taken on VAT. I have here positions set out by not only the hon. Member for Brecon and Radnorshire (Roger Williams), but the hon. Member for North Cornwall (Dan Rogerson), who called for a review, and a Liberal Democrat activist, who called for a cut in VAT on tourism in that part of the world. Just how many positions do the Liberal Democrats have on VAT?
Nia Griffith: The whole point is that our new clause calls for a proper assessment to be made to see what the actual effect of the current VAT rate is on the economy, given the lack of growth and the lack of a plan for growth. The important thing is to carry out that impact assessment and work out the best growth strategy, because nothing is coming from this Government in order to put things right.
What has been happening in the news recently? Everybody must be aware of the crisis we are facing on our high streets and in store after store. This is happening to TJ Hughes and its 57 stores, to Jane Norman’s 90 stores and 100-plus concessions, to Habitat, and to HomeForm, which covers Möben Kitchens and Dolphin Bathrooms. Some 5,300 jobs are in the balance, and now we hear about what is happening to Thorntons and Comet. Judith McKenna, chair of the CBI’s distributive trades panel, has commented:
“After a year of growth, high street sales volumes fizzled out in June….Shoppers are budgeting hard and cutting back on their discretionary spending, such as on clothes and big ticket household goods.”
She is the CBI’s chief financial officer.
Alison McGovern (Wirral South) (Lab): I thank my hon. Friend for mentioning TJ Hughes in her speech, because all this will have a great impact on its home in Merseyside. Does she agree that it demonstrates a problem with the Government’s approach to VAT, which is that the inflationary expectations they have built into the economy are damaging not only the people who will lose their jobs at TJ Hughes, but high streets throughout Merseyside and up and down our country?
Nia Griffith: I wish to correct what I said, because Judith McKenna is chair of the CBI distributive trades panel and ASDA’s chief financial officer.
The point is that the message is being given clearly from all our retail people. The CBI’s retail sales index fell to its weakest level in a year. Why was that? It was because anxious shoppers are cutting back on purchases of clothing, groceries and big-ticket items, as everybody is being squeezed.
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Mr Robinson: Does my hon. Friend agree that the gist of what she is a saying in a general and good contribution is that the Government have managed to combine a deflationary economic policy with inflation at double the rate they forecast? Such a policy does not stand up. Is not the core of this their overall deflationary policy, of which an increase in VAT was the central part?
Nia Griffith: Absolutely. That is now having a devastating impact on the economy, on businesses and on individual families. In our new clause, we are asking for a proper impact assessment of the effect of the VAT rate on growth in the UK. Let us see whether the Government can come up with something more constructive and find a way to drive the economy forward.
Jonathan Edwards: I thank my parliamentary neighbour for giving way. Is she saying that the evidence is already there that the VAT rise is hurting the economy, as I believe it is, or that we need a review to see whether it is doing so?
Nia Griffith: I am saying that any fiscal measure is interdependent on other fiscal measures and the Government need to decide how their growth strategy will work and how the VAT rate will fit into that, in addition to any other fiscal measures they wish to take. I am not promoting any one particular measure, but there needs to be some form of stimulus because at the moment we are spiralling downwards and seeing increases in the debt and the deficit, in the benefits bill and in the number of people who are out of work. We would like to see increases in the number of jobs and in the number of businesses that are picking up and we would like to see the deficit come down so that we can get Britain back to work and get people back into jobs. The problem at the moment is that the policies with which we are being presented seem to do precisely the opposite, as was ably explained by my hon. Friend the Member for Coventry North West (Mr Robinson) a moment ago.
We need a proper assessment and we need proper decisions to be made on the basis of it to help our economy to grow.
Roberta Blackman-Woods: I want to support new clause 10. It is very important that the assessment of VAT considers the effects of the rise on both individuals and businesses. We need to consider both categories to understand fully the impact that the rise could have on economic growth. I know from sitting through the last debate that the Conservative and Liberal Democrat parties have no understanding and no idea of the pressures that are being placed on family budgets. This debate seems to be showing that they do not have any understanding of the stresses and strains being put on businesses in constituencies such as mine. In fact, as my hon. Friends have said, the Government seem to have very little understanding of what is happening to businesses across the north of this country.
I know from my constituency postbag and I hear from my local citizens advice bureau that more and more people are looking for advice not only because they are concerned that they might lose their jobs, which is affecting a large number of people in my constituency and the neighbouring areas, but because those who are in work are experiencing increasing rises in food, energy and petrol prices while facing a cut in wages in order to keep themselves in employment. If we
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add those factors together, we can see that consumers are concerned about the future, which is affecting what they purchase on the high street. That has a huge impact on all our constituencies and we have heard tonight of many examples of businesses in the retail sector that are falling daily.
Mr Kevan Jones: Does my hon. Friend agree that a vivid example of that can be seen when one walks through the centre of the fine city of Durham? An increasing number of shops are closed with no trade taking place at all.
Roberta Blackman-Woods: I am grateful to my hon. Friend for making that point and I shall come to the city of Durham in just a moment or two.
The situation that I am describing, with reducing consumer confidence and increasing stresses on business, would definitely be helped by a reduction in VAT, even if it were temporary.
Hywel Williams (Arfon) (PC): May I congratulate the hon. Lady on making such a fine and powerful case in favour of the new clauses tabled by my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards)? Given the case that she is making, why do we need yet another review?
Roberta Blackman-Woods: That is an interesting point, but as my right hon. Friend the Member for Delyn (Mr Hanson) said earlier from the Front Bench, we would like to see a time scale and an end point.
As I was saying, we need a full assessment about whether a reduction in VAT would really help to turn around areas such as the one I represent. I also want to know exactly what the impact is on growth, and I will come to that in a moment or two. I want to take up the point that my hon. Friend the Member for North Durham (Mr Jones) made point about retail, but my argument is that almost every single sector in Durham is being affected by the rise in VAT that was brought in by the parties in government. We are a constituency that has a large public sector not because it is crowding out the private sector, which is the mantra we always hear from the Government parties, but because it is an administrative centre and so has a large number of public sector jobs. However, the public sector is being hit by public expenditure cuts as well as by the rise in VAT.
Bill Esterson: The situation that my hon. Friend describes is also typical of my constituency, where we have a very high level of people working in the public sector who are threatened with job losses from the parties in government. We also have a large number of small businesses that depend on those public sector workers for their custom. Those businesss are finding, as other Members have mentioned, that the VAT rise makes it very difficult for them to keep prices at the same level, and that has made it very difficult for them to trade effectively.
Roberta Blackman-Woods:
My hon. Friend makes an excellent point, which clearly demonstrates a major problem in the economic strategy of the parties in government, which show no understanding of the links
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between spending in the public sector and private sector businesses. That is a very great shame and is to the detriment of business in many areas.
My hon. Friend the Member for North Durham has talked about the great impact on retail businesses in my constituency, and I am concerned about the ability of some businesses in the city centre to keep going. I have been talking to the head of one of the construction businesses in my constituency, which has been a very vibrant business in the past, and he told me that it is not only flatlining but might be about to go bust. That is extraordinary because it is a major company, but jobs in the construction sector are drying up. Other hon. Members have made this important point, which shows the lack of growth strategy from the parties in government. I would like there to be some consideration about whether a reduction in VAT could help to push down inflation and could lead to a boost in job creation, particularly in areas such as mine.
Mrs Moon: Does my hon. Friend accept that part of the problem is that some of the smaller construction companies do not feel able to take on a young apprentice and help them to train, thereby giving them that initial start in business that might help them to see a future? Instead, those people cannot find work and feel that there is no hope, and that desperation is placing a huge depression over many of our communities.
Roberta Blackman-Woods: My hon. Friend makes an excellent point. As a result of the insecurity that a number of businesses face, they are more reluctant than they were to give young people—and older workers—apprenticeships.
12.45 am
Roger Williams: The hon. Lady makes an important point about the construction industry, but does she agree that some of the problems in that industry were due to the previous Government’s abolition of the industrial buildings tax allowance, and indeed the agricultural buildings tax allowance, which led to a contraction in the construction industry?
Roberta Blackman-Woods: The previous Government’s investment in the economy led in my constituency to a huge growth in construction jobs for those working on not only fine public-sector projects such as our new hospital and our new school, but new housing. That has just disappeared. The really serious point that I am making is that there is no growth strategy from the Government parties to ensure growth in construction jobs in my constituency—in fact, quite the opposite. We know from national figures that there is an effect on the construction sector right across the country.
Ian Paisley: Does the hon. Lady agree that there are a number of cash-flow issues that affect the entire business sector, and particularly the construction industry? There is a lack of cash flow from banks to business; from business to business, which means that debts are not paid; and of course from business to consumer, and from consumer back to business. Does she agree that the measures that are being proposed are among a cocktail of measures that need to be introduced if we are to start to address the nation’s economic crisis?
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Roberta Blackman-Woods: The hon. Gentleman makes an interesting point. He describes very well the downward spiral that businesses can get into unless there is a clear strategy in place to counter the deflationary measures in the economy, and we are simply not seeing that from the Government parties.
Mr Robinson: Does my hon. Friend agree, having listened to the minor carps of Liberal Members, that the essential difference between our policy and theirs seems to be on the issue of aggregate demand in the economy? All that the Government have done is reduce it by cancelling overnight Building Schools for the Future. That has halved the demand for construction in my constituency, and denied two crucial schools new buildings that they desperately need.
Roberta Blackman-Woods: My hon. Friend makes an excellent point, and reduced demand, not just from sectors but from individuals, appears to be very damaging for communities such as mine.
I want to talk about tourism in my constituency. Tourism was mentioned earlier; we know that VAT rises have really had an impact on the tourism industry, and cities such as mine are suffering because of that. People do not have as much disposable income as they did, so they are not spending as much on leisure, and that has an impact on tourism.
Mr Kevan Jones: It took the Minister with responsibility for tourism a year to visit the north-east; he finally turned up in the north-east last week. Is my hon. Friend as concerned as I am not just about the effect of VAT on tourism in Durham, but about the fact that the Minister had no answers whatever when it came to the issue of replacing One North East’s marketing campaign to promote tourism? He basically said to local businesses that they had to get on with it themselves.
Roberta Blackman-Woods: I am not sure that I am surprised that that was the answer from the Minister with responsibility for tourism. I shall come on to the regional development agency in a moment or two.
Stewart Hosie (Dundee East) (SNP): For the past 10 minutes, the hon. Lady has been making a very good speech. She has said that virtually every sector in her constituency is under pressure. She was worried that businesses might not even be able to keep going. She spoke about a construction company that is under huge pressure. She described the inflationary impact of the VAT rise. She spoke about the downward spiral for businesses, and the impact of the VAT rise on tourism. Would she please explain, then, why she will not vote tonight for a temporary decrease? Has Labour changed its position? Does the shadow Chancellor not know what he is doing? Is he having a fight with his party’s leader, or is this just the normal Labour shambles?
Roberta Blackman-Woods: I can only suppose that the hon. Gentleman was not listening to the answer that I gave earlier to his colleague, who made the same point.
Hywel Williams: Will the hon. Lady give way?
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Roberta Blackman-Woods: I had better make progress as others want to speak. I have been quite generous in giving way.
In conclusion, I shall deal with the issue of growth and why it is so necessary for us to monitor the impact of the rise in VAT on the economy, on families and on the whole country. I make a plea for the Government to look particularly at how that is impacting on growth in the north. It was reckless of the Government to get rid of a regional development agency in the north-east that had a very good plan in place for promoting growth and identifying sectors of the economy that would benefit from public sector investment that would lever in private sector investment. We have no growth strategy in place from the Government, and that is having a huge impact. I would like that to be examined alongside the impact of the VAT increase.
Toby Perkins: This is not the first time that I have been involved in passionate debate at 12.50 am, but under normal circumstances it has taken place in a rather less rarefied environment than we are currently enjoying. I shall speak to new clause 10 and the need to assess the impact of VAT on a range of things. We should remember that the Bill follows the Budget for growth, as it was described at the time. One has to ask whether that has been investigated by the Advertising Standards Authority, because since the Budget for growth we have seen growth continuing to flatline.
We saw three months of negative growth at the back end of 2010, which was blamed on the wrong kind of snow. In early 2011, we were expecting a huge boom, with all the people who had been unable to get out to the shops in December rushing out in January and getting the economy moving, but of course it did not happen. The Chancellor’s Budget for growth was a damp squib.
At every level the Chancellor has demonstrated that he just does not get it. He does not get the challenges facing working people or the challenges facing business. He does not understand the cause of the banking crisis and the collapse of the banking model. He does not understand the need for growth and how the Government can stimulate it. Most importantly, he does not understand that the public and the private sector need to co-exist and depend on each other in a constructive economy.
There is no taxation that does not have knock-on effects. The knock-on effects of VAT are phenomenal. The Institute of Economic Affairs described the VAT increase as “bad economics”. If people do not choose to listen to the Institute of Economic Affairs, perhaps they want to listen instead to the economic genius who was advising Norman Lamont when we were led into black Monday. In January this year, the Prime Minister said about VAT:
“If you look at the effect as compared with people’s income then, yes, it is regressive.”
That was at least consistent—it was exactly what he had said in opposition. But what about the Deputy Prime Minister? We all remember him. Back in the old days, when he was still pretending to be a progressive, we remember him with his giant Tory tax bombshell. We have been told tonight that those signs did not mean that he was against a VAT rise, or that the Liberal Democrats would not introduce such a tax bombshell; he was simply warning us that it was coming and that
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we should beware. A lot of Liberal Democrat leaflets were delivered in Chesterfield, and I thought at the time that they were describing the impact of the VAT increase as a bad thing, but today those of us who have never visited Planet Clegg have been put straight. The impact of VAT on the cost of living is significant, and increasing the cost of living has a dramatic impact on people’s capacity to spend money and support the economic growth that we need.
Jon Ashworth (Leicester South) (Lab): One of the effects of the VAT increase is its contribution to inflation, which is currently running at twice the rate of earnings growth. The Bank of England has suggested that inflation will hit 5% later this year because of increases in utility prices, which are a result of the VAT increase. Many of my constituents are feeling particularly hit by that. Is that also the case in Chesterfield?
Toby Perkins: Absolutely. My hon. Friend makes an important point. The impact is being felt on the cost of everything, even items on which VAT is not charged, because businesses and members of the public are having to spend more on others items. There is the impact on fuel and heating costs and the downward pressure on wages, as we see the failure to achieve economic growth and the public sector being told that it will have no wage increases for two years and that pension contributions will increase. All those impacts are contributing to people spending more on VAT and having less money.
Andrew Gwynne: New clause 10 proposes an assessment of the impact of VAT on the economy, and of course we can now make a direct comparison with a fairly recent period when the previous Labour Government introduced a temporary cut in VAT and got the economy growing again. Is it not the case that we need to make that assessment so that we can see where this Government are getting it so badly wrong?
Toby Perkins: Absolutely. The new clause could not be more reasonable. It is impossible to imagine even having a vote on it, because I cannot see how anyone could argue against the need for an assessment when there is so little growth in our economy.
Ian Paisley: Does the hon. Gentleman agree that we need a much more strategic approach to this? We have the ludicrous situation that our taxation policies affect even our international relations. For example, we have lent £7 billion to our nearest and dearest—by which I mean expensive—neighbour, the Irish Republic, which allows it to reduce its internal taxation and reduce to a matter of pennies its aviation tax, yet our taxation continues to increase, which ruins business opportunities in our country. We need a more strategic approach so that if we lend money overseas we can ensure that it does not undermine taxation policy in this country.
Toby Perkins:
That is an interesting point. We had the ludicrous situation of the Chancellor claiming that our country was on the verge of bankruptcy, but at the same time giving money to a country that was genuinely in a very difficult position. His credibility is really damaged when, for political gain, he says things that he knows are not true, and that every serious economist knows are not true. No one seriously believes that he
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would have lent money to the Irish if he thought that this country was on the verge of bankruptcy. What we saw in Ireland was what would have happened if we had followed the dangerous policies that the Conservative party proposed in 2008, which were to start cutting when the recession was at its worst. It is precisely for that reason that there is now so little economic confidence.
1 am
Susan Elan Jones (Clwyd South) (Lab): Having tried on three occasions to intervene on speeches by Conservative Members, and on each occasion been told no, I am grateful to my hon. Friend for accepting this intervention.
On VAT, Conservative Members bleat that it is not possible to secure any rebate on VAT because the Europeans will not let us, but does my hon. Friend recall that the French managed to do so for their own restaurateurs? What is it about Conservative Members’ being so gutless and spineless that they will not argue our case in Europe in order to do something that would actually improve life for people in this country—especially as they brought in the VAT increase in the first place?
Toby Perkins: If I had had any idea that my hon. Friend so desperately wanted to intervene I would have given way earlier, but I am pleased to have been able to make her dream come true. The strong point that she makes, and on which Members should reflect, is precisely why my right hon. Friend the Member for Delyn (Mr Hanson) suggests that we assess the impact of the VAT increase.
I am not trying to get into a class war thing, but one reason why the Chancellor has got things so wrong and why so many of his policies seem so out of kilter is that he has no concept of what people can actually buy with a half-decent salary. That is one reason why, at the drop of a hat, he introduced the changes to child benefit. As someone who was loaded the day he was born, he has no idea of the difference between a salary of £50,000 a year, £20,000 a year or £12,000 a year; he just knows that they are a lot less than he has, and that people on £50,000 seem to earn more than the average so they are probably okay.
Mr Kevan Jones: Has my hon. Friend noticed that the same applies to the majority of the Cabinet? I understand that among both its Conservative and Liberal Democrat members there are some 20 millionaires, so they say that we are all in it together, but they are clearly not.
Toby Perkins: My hon. Friend makes a valuable point. No one is suggesting that because someone is wealthy they do not have a right to go into politics, just as we would never keep someone out of politics because they were poor—[ Interruption. ] Well, we would never do so! The central point, however, is that when the policies that the Government pursue seem so directly to hit the most deprived people, to attack pensioners and, particularly, to attack women as they have on so many different occasions, people will understandably look at the background of the people making those decisions. When people hear them in opposition say that they recognise that VAT is a regressive tax, but see them go into government and try to claim something different, they will understandably question their credibility.
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VAT hits the poor, the workless and pensioners. Are those really the people the Chancellor wants in his sights?
Toby Perkins: Absolutely. The VAT cut, like so many other Government policies, is hitting women hardest.
I do not know, Mr Speaker, whether you ever have the opportunity to visit the Conservativehome website, but if anyone does so today they will see an article entitled “The Conservatives are losing female supporters. Why?” We have had many debates that could have given them the answer, but basically every single economic policy that they have introduced has had an adverse effect on women. Women are more likely to be public sector workers; women have been badly hit by the pension changes; women are more likely to be impacted by the VAT increase; and women often manage the family budget and have noticed acutely the increase in and squeeze on the amount that they have to spend. The Conservatives are trying to analyse why women are deserting them, and we can lead them to the answer without the need for them to do much research at all.
The challenges that business face are significant. Before coming to this place, I was running my own business. Confidence is low. When customers are worried about whether they will be able to afford to pay their mortgage, they will not be spending money on anything that they do not need. The banks are not lending, public sector organisations are not buying from the private sector because they have less money, and IT suppliers are finding that they are not getting the business they relied on from the public sector. At the same time, public sector employees are not contributing to the private sector by buying all the things they would be buying if they had confidence in the security of their jobs. The cuts to the public sector are having a dramatic effect on the private sector.
We have had a Budget for growth that has led to no growth. We now need an assessment of the impact of the VAT increase so that we can understand fully the reasons we are not getting growth in the economy. We need to make decisions based on getting people back to work, getting money in people’s pockets, and seeing the economy grow back in the way that every single one of us wants it to.
Kate Green: It is a pleasure to follow my hon. Friend the Member for Chesterfield (Toby Perkins) and to echo many of his remarks.
I appreciate that it is late, and I will keep my remarks brief, but it would be remiss of me not to speak up on behalf of my constituents to express the genuine concerns about the impact on businesses and families of the Government’s fiscal policies, including, in particular, their policy on VAT.
The impact on families, especially the poorest families, of the Government’s fiscal measures is a cause of considerable concern. The other day, the Institute for Fiscal Studies told us that inflation is having a 60% greater impact on poorer families than on better-off households. The poorest fifth of families now face an inflation rate of 4.3%, compared with the richest fifth, for whom it is only 2.7%, and the higher rate is hitting pensioners especially harshly. I suspect that we all know this from
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standing on the doorsteps in our constituencies and listening to families talk about the pressures they are facing in managing the rising cost of living and the difficulties they are experiencing in making ends meet. Families across the piece are beginning to feel the squeeze that is resulting from the Government’s policies, and there is no doubt that the VAT increase is a significant element in that.
I am sorry that the hon. Member for Redcar (Ian Swales) is not in the Chamber, because there are one or two important points about VAT that we need to ensure that Conservative Members understand. First, VAT is a regressive tax because it hits the lowest income deciles disproportionately harshly. That is because it is a flat-rate tax that it is taken away from the poorest families at the same rate as from the better-off. All the sleight of hand that looks at expenditure deciles misses the point that families with lower disposable incomes are seeing more of their income eaten up on non-discretionary spend, where costs are rising.
My hon. Friend the Member for Llanelli (Nia Griffith) rightly pointed out that we are talking about spend not on luxuries but on household basics. We recognise that food and children’s clothes are exempt from VAT, but let us remember all the other household basics that families will still have to go out and buy: soap powder, washing-up liquid, shampoo, shoe repairs. These are not items of frivolous luxury but everyday expenditures that families have to meet. In addition, as families rightly seek to enter or stay in the labour market, there are the costs for adults of buying clothes and equipment for work. VAT is a regressive tax that harshly hits ordinary families on tight budgets, and that is an important first consideration for Conservative Members to bear in mind.
Secondly, as many of my hon. Friends have said, we need to think about the impact that the VAT rise is having on the economy as a whole. That is the thrust of new clause 10. Here again, there is a basic lesson in economics that my hon. Friends have been trying to get across. Some Government Members have said that businesses can reclaim VAT. That neglects the fact that VAT, wherever it is applied in the product chain, ends up being charged somewhere. It ends up being charged when the consumer goes out and buys the goods. It does not somehow disappear in the course of VAT recovery, but is charged ultimately to the customer, who is now faced with spending more on essential items and having less to spend on additional items. That is having a damaging effect on business, manufacturing, retail and jobs. That is the point that I and my hon. Friends have been trying to get across.
It is a pity that the hon. Member for Redcar has only just arrived as I finish this helpful, if rather basic lesson in elementary economics. You will not want me to repeat it all at this time of night, Mr Speaker, so perhaps the hon. Gentleman can read the Official Report tomorrow to gain the benefit of what I and my hon. Friends have been trying to get across.
As I said, I want to make a few remarks about the impact that this policy is having in my constituency. I have talked about the impact that it is having on families in my constituency. Hon. Members have alluded to the
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impact that it has had on HomeForm, which is a substantial business based in Old Trafford in my constituency. It has been forced into financial difficulties, and I am very concerned about that. I am also concerned about an exceptionally important and large retail centre in my constituency, the Trafford centre, with which hon. Members may be familiar. I am concerned about jobs at the Trafford centre, particularly because of the nature of those jobs. They are exactly the kind of jobs that low-income families and those who can manage only a few hours of work are reliant on: part-time jobs, shift jobs and low-skilled jobs. Those are the jobs that are being put at risk and those are the jobs that do something—not very much, but something—to keep families on modest incomes afloat.
I am concerned that there is an impact on families, an impact on industry, an impact on retail and an impact on jobs. As my colleagues have said, that translates into a fall in consumer confidence and a fall in retail growth. We are concerned therefore about the damaging effect on the economy overall.
As the House is aware, we are asking simply for an assessment of the economic impact of the Government’s VAT rise. I think that that is a reasonable thing to ask for, particularly given the Chancellor’s apparent greater open-mindedness towards the economic impact of the 50% income tax rate introduced by the last Labour Government for those with incomes of more than £150,000. It was interesting to hear him say explicitly in his Budget statement in March this year that he regards that as “a temporary measure” and that he is concerned about what its broader impact may be. We are asking simply that VAT—a tax that affects all families, all households, all businesses and our economy as a whole—be subject to the same degree of scrutiny and review. I am at a loss to understand why a responsible Government would not want to take on board new clause 10 and support us in the Lobby this evening.
Mr Gauke: We have had an interesting debate. I must admit that I am surprised that on the subject of VAT cuts I am responding principally to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) and that it is he who tabled the new clause calling for a VAT cut. After all, it was only on 16 June that, with much fanfare, the shadow Chancellor announced the Opposition’s flagship policy of a cut in VAT—the first paragraph to appear on the blank sheet that is Labour policy. Yet with an opportunity to legislate for that very policy today, the official Opposition failed to get around to tabling their new clause until the day before the debate—too late for selection.
1.15 am
We could speculate as to why that is the case. Perhaps the Labour party has reconsidered its policy. After all, by the time of Treasury questions on 21 June the shadow Ministers were refusing to raise the policy in the Chamber, and on 22 June various shadow Ministers were quoted in the Financial Times as complaining about not being consulted, and were admonished for doing their politics on the record. Of course, the previous Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), failed to support the policy on eight occasions. In an Opposition day debate, Labour Back Benchers failed to mention it at all. Perhaps the policy
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has been quietly dropped, replaced by the more modest new clause 10, which we heard from the right hon. Member for Delyn (Mr Hanson) suggests an assessment of the impact of the VAT rate on UK economic performance.
Of course, there was new clause 16, which was not selected. Was the delay in tabling it because of indecisiveness? Do the Opposition want to put forward that policy or not? Perhaps there was a delay in the process as it was cleared through the shadow Cabinet—we know how the shadow Chancellor likes to do that. Perhaps it was waiting for consent from the right hon. Member for Dulwich and West Norwood (Tessa Jowell). Or perhaps it was incompetence. It is, after all, difficult in opposition. There are no officials to help, and there are deadlines to meet. Somehow, however, the formidable Westminster machine that is Plaid Cymru managed to get its new clause in on time. When the shadow Chancellor was appointed, we heard much about how he was a ruthless street-fighter, how he was endlessly harrying the Government, how he would set the agenda and how he would imaginatively exploit parliamentary opportunities to the full. Six months on, he cannot even get his key new clause tabled in time. This is the man who wants to run the economy.
On the subject of VAT policy, what have we heard from the official Opposition? First we learned that the right hon. Member for Edinburgh South West was in favour of raising VAT to 19%, then the official Opposition abstained on the increase to 20%. Then they had a policy of cutting VAT on road fuel, which turned out to be illegal, so whereas we got on with cutting taxes on road fuel, the Opposition would have engaged in endless negotiations on a derogation. Then, last week, we heard the policy of cutting VAT on a temporary basis, even if the Opposition are not entirely sure about it. This week we learn that they are not going to vote in favour of that policy. What the hon. Member for Carmarthen East and Dinefwr said is correct—his new clause would be a temporary policy, yet the official Opposition are not going to support it. In other words, in 12 months we have had three shadow Chancellors and five different policies on VAT.
I can be clear about our position. I know that hon. Members have heard this before, but I will say it again. This Government inherited an exceptional fiscal challenge—the largest deficit in post-war history, and the state borrowing £1 in every £4 that it spent. We have undertaken a programme of fiscal consolidation, and the VAT increase is a necessary part of that plan. Current economic conditions and events in Europe reinforce the view that fiscal consolidation is the right course of action for the UK, and the evidence shows that the plan is working. The economy is growing and will grow further. We have the advantage of interest rates on a par with Germany’s, even though we are borrowing more than Greece and Portugal.
Mr Robinson: How can the Exchequer Secretary say that the economy is working and growing? It flatlined for six months, and according to his own Office for Budget Responsibility, the prognosis is that we will borrow £46 billion more over the period of the deficit reduction plan, and that unemployment will rise by 200,000 over the same period. How can he pretend that the plan is working?
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Mr Gauke: The fact is, the economy grew in the first quarter of this year, after the VAT increase, unemployment fell this year at the fastest rate since 2000, and borrowing is falling. The plan is working. I am afraid that Opposition attempts to talk the economy down are not working. In difficult international conditions, the economy is growing.
Raising the rate of VAT was a difficult decision to take, but it was the right decision, and the responsible thing to do. The Opposition proposal is reckless: an unfunded VAT cut to the tune of £12 billion a year, and £51 billion over the Parliament. How do the Opposition propose to fill that gap? Would they revert to their tax on jobs? Do they think that that would stimulate growth?
Deficit reduction, in which the VAT increase plays an important role, is a prerequisite for sustained economic growth. At the June Budget and in the spending review, the Chancellor set out a credible plan to reduce the deficit. According the OBR, the plan is consistent with medium-term growth, achieving the mandate in 2014-15, a year earlier than required. The International Monetary Fund continues to back the Government’s consolidation plans, and to advise against changing course. It considered whether it is time to adjust macro-economic policy, and its conclusion is that the answer is no.
Events in Europe and around the world in the past few weeks have shown how important it is for countries with large deficits, such as the UK, to have a credible plan to deal with their debts. The Government have a credible plan. The British economy is recovering, output is growing and new private sector jobs are being created. We have set out why we have made those changes and explained what is required. We are putting our economy on a path of sustainable growth. I urge hon. Members not to press the new clauses to Divisions, and to support the Government’s plans for this country.
Jonathan Edwards: We have had a very interesting debate, although I find myself somewhat confused by the voting intentions of hon. Members. We will see in a few moments.
I shall not press new clause 6 to a Division, because it proposes a permanent reduction in VAT. New clause 9, however, proposes a temporary reduction, no matter what Labour Front Benchers say, and I will press that to a Division. Those who do not join us in the Lobby for the Division on new clause 9 will not be able to say with any credibility that they oppose the January VAT increase.
I beg to ask leave to withdraw the motion.
‘(1) The Chancellor of the Exchequer shall make an order under the powers conferred by sections 2(2) and 21(7) of the Value Added Tax Act 1994 that in section 2(1) of the Value Added Tax Act 1994 (rate of VAT), the rate of tax charged by virtue of that section shall be decreased by 12.5 per cent.
(2) In section 21(4) (value of imported goods) of the Value Added Tax Act 1994 for “25” substitute “28.58”.
(3) This Order shall be known as The Value Added Tax (Change of Rate) Order 2011 and shall come into force on 30 August 2011.’.—(Jonathan Edwards.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
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The House divided:
Ayes 10, Noes 293.
[1.22 am
AYES
Edwards, Jonathan
Hopkins, Kelvin
Lucas, Caroline
McCrea, Dr William
Owen, Albert
Paisley, Ian
Shannon, Jim
Skinner, Mr Dennis
Williams, Hywel
Wood, Mike
Tellers for the Ayes:
Dr Eilidh Whiteford and
Stewart Hosie
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Amess, Mr David
Andrew, Stuart
Arbuthnot, rh Mr James
Bacon, Mr Richard
Baker, Norman
Baker, Steve
Baldry, Tony
Baldwin, Harriett
Barclay, Stephen
Baron, Mr John
Bebb, Guto
Beith, rh Sir Alan
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Blackwood, Nicola
Blunt, Mr Crispin
Boles, Nick
Bone, Mr Peter
Bottomley, Sir Peter
Bradley, Karen
Brake, Tom
Bray, Angie
Brazier, Mr Julian
Brine, Mr Steve
Brokenshire, James
Brooke, Annette
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burrowes, Mr David
Burstow, Paul
Byles, Dan
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carmichael, Neil
Carswell, Mr Douglas
Chishti, Rehman
Chope, Mr Christopher
Clappison, Mr James
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Crockart, Mike
Crouch, Tracey
Davey, Mr Edward
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
de Bois, Nick
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duddridge, James
Duncan, rh Mr Alan
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Ellwood, Mr Tobias
Elphicke, Charlie
Eustice, George
Evans, Graham
Evans, Jonathan
Evennett, Mr David
Fabricant, Michael
Fallon, Michael
Featherstone, Lynne
Field, Mr Mark
Foster, rh Mr Don
Fox, rh Dr Liam
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fullbrook, Lorraine
Fuller, Richard
Garnier, Mr Edward
Garnier, Mark
Gauke, Mr David
Gibb, Mr Nick
Gilbert, Stephen
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Graham, Richard
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Green, Damian
Greening, Justine
Griffiths, Andrew
Gummer, Ben
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hands, Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Harvey, Nick
Haselhurst, rh Sir Alan
Hayes, Mr John
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howell, John
Hughes, rh Simon
Hunter, Mark
Huppert, Dr Julian
Jackson, Mr Stewart
James, Margot
Javid, Sajid
Johnson, Gareth
Johnson, Joseph
Jones, Andrew
Jones, Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kirby, Simon
Knight, rh Mr Greg
Kwarteng, Kwasi
Laing, Mrs Eleanor
Lansley, rh Mr Andrew
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Lefroy, Jeremy
Leigh, Mr Edward
Leslie, Charlotte
Lewis, Brandon
Lilley, rh Mr Peter
Lloyd, Stephen
Lord, Jonathan
Loughton, Tim
Luff, Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maude, rh Mr Francis
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Mensch, Mrs Louise
Menzies, Mark
Mercer, Patrick
Metcalfe, Stephen
Mills, Nigel
Milton, Anne
Moore, rh Michael
Mordaunt, Penny
Morgan, Nicky
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, Mr Stephen
Offord, Mr Matthew
Ollerenshaw, Eric
Ottaway, Richard
Paice, rh Mr James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penning, Mike
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Raab, Mr Dominic
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Robathan, rh Mr Andrew
Robertson, Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Ruffley, Mr David
Rutley, David
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Sharma, Alok
Shelbrooke, Alec
Simmonds, Mark
Simpson, Mr Keith
Skidmore, Chris
Smith, Miss Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soubry, Anna
Spencer, Mr Mark
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Sturdy, Julian
Swales, Ian
Swayne, Mr Desmond
Swinson, Jo
Swire, rh Mr Hugo
Syms, Mr Robert
Teather, Sarah
Thurso, John
Timpson, Mr Edward
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Robin
Wallace, Mr Ben
Walter, Mr Robert
Ward, Mr David
Watkinson, Angela
Weatherley, Mike
Webb, Steve
Wharton, James
Wheeler, Heather
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Williams, Mr Mark
Williams, Roger
Williams, Stephen
Willott, Jenny
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Stephen Crabb and
Norman Lamb
Question accordingly negatived.
28 Jun 2011 : Column 922
28 Jun 2011 : Column 923
‘The Treasury shall, within three months of the passing of this Act, report to Parliament its assessment of the impact of the rate of VAT on UK economic growth.’—(Mr Hanson.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The House divided:
Ayes 159, Noes 295.
[1.34 pm
AYES
Ainsworth, rh Mr Bob
Alexander, rh Mr Douglas
Ali, Rushanara
Ashworth, Jon
Austin, Ian
Bailey, Mr Adrian
Bain, Mr William
Balls, rh Ed
Banks, Gordon
Barron, rh Mr Kevin
Bayley, Hugh
Beckett, rh Margaret
Begg, Dame Anne
Benn, rh Hilary
Benton, Mr Joe
Betts, Mr Clive
Blackman-Woods, Roberta
Blenkinsop, Tom
Blomfield, Paul
Bradshaw, rh Mr Ben
Brennan, Kevin
Brown, Lyn
Brown, rh Mr Nicholas
Bryant, Chris
Burden, Richard
Byrne, rh Mr Liam
Campbell, Mr Alan
Caton, Martin
Coaker, Vernon
Connarty, Michael
Cooper, Rosie
Corbyn, Jeremy
Crausby, Mr David
Creasy, Stella
Cryer, John
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Tony
Dakin, Nic
Danczuk, Simon
David, Mr Wayne
Davies, Geraint
De Piero, Gloria
Dobbin, Jim
Dobson, rh Frank
Docherty, Thomas
Dowd, Jim
Dugher, Michael
Durkan, Mark
Eagle, Ms Angela
Eagle, Maria
Edwards, Jonathan
Efford, Clive
Engel, Natascha
Esterson, Bill
Evans, Chris
Flello, Robert
Gardiner, Barry
Glindon, Mrs Mary
Goodman, Helen
Green, Kate
Griffith, Nia
Gwynne, Andrew
Hain, rh Mr Peter
Hamilton, Mr David
Hamilton, Fabian
Hanson, rh Mr David
Healey, rh John
Hendrick, Mark
Heyes, David
Hodgson, Mrs Sharon
Hopkins, Kelvin
Hosie, Stewart
Jackson, Glenda
James, Mrs Siân C.
Jarvis, Dan
Johnson, Diana
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Jowell, rh Tessa
Joyce, Eric
Lammy, rh Mr David
Lavery, Ian
Lazarowicz, Mark
Leslie, Chris
Lloyd, Tony
Lucas, Caroline
Lucas, Ian
Mahmood, Shabana
Mann, John
McCabe, Steve
McCann, Mr Michael
McCarthy, Kerry
McClymont, Gregg
McCrea, Dr William
McDonnell, Dr Alasdair
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McKinnell, Catherine
Meacher, rh Mr Michael
Meale, Sir Alan
Michael, rh Alun
Miller, Andrew
Moon, Mrs Madeleine
Morden, Jessica
Morrice, Graeme
(Livingston)
Morris, Grahame M.
(Easington)
Munn, Meg
Murphy, rh Paul
Nash, Pamela
O'Donnell, Fiona
Owen, Albert
Paisley, Ian
Perkins, Toby
Pound, Stephen
Reynolds, Jonathan
Riordan, Mrs Linda
Ritchie, Ms Margaret
Robertson, John
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Lindsay
Ruane, Chris
Seabeck, Alison
Shannon, Jim
Sheridan, Jim
Shuker, Gavin
Skinner, Mr Dennis
Smith, rh Mr Andrew
Smith, Angela
Smith, Nick
Smith, Owen
Spellar, rh Mr John
Stringer, Graham
Sutcliffe, Mr Gerry
Tami, Mark
Thomas, Mr Gareth
Thornberry, Emily
Timms, rh Stephen
Trickett, Jon
Turner, Karl
Twigg, Stephen
Umunna, Mr Chuka
Vaz, Valerie
Watson, Mr Tom
Watts, Mr Dave
Whiteford, Dr Eilidh
Whitehead, Dr Alan
Williams, Hywel
Williamson, Chris
Wilson, Phil
Winnick, Mr David
Winterton, rh Ms Rosie
Wood, Mike
Woodcock, John
Wright, David
Wright, Mr Iain
Tellers for the Ayes:
Lilian Greenwood and
Graham Jones
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Amess, Mr David
Andrew, Stuart
Arbuthnot, rh Mr James
Bacon, Mr Richard
Baker, Norman
Baker, Steve
Baldry, Tony
Baldwin, Harriett
Barclay, Stephen
Baron, Mr John
Bebb, Guto
Beith, rh Sir Alan
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Blackwood, Nicola
Blunt, Mr Crispin
Boles, Nick
Bone, Mr Peter
Bottomley, Sir Peter
Bradley, Karen
Brake, Tom
Bray, Angie
Brazier, Mr Julian
Brine, Mr Steve
Brokenshire, James
Brooke, Annette
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burrowes, Mr David
Burstow, Paul
Byles, Dan
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carmichael, Neil
Carswell, Mr Douglas
Chishti, Rehman
Chope, Mr Christopher
Clappison, Mr James
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Crockart, Mike
Crouch, Tracey
Davey, Mr Edward
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
de Bois, Nick
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duncan, rh Mr Alan
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Ellwood, Mr Tobias
Elphicke, Charlie
Eustice, George
Evans, Graham
Evans, Jonathan
Evennett, Mr David
Fabricant, Michael
Fallon, Michael
Featherstone, Lynne
Field, Mr Mark
Foster, rh Mr Don
Fox, rh Dr Liam
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fullbrook, Lorraine
Fuller, Richard
Garnier, Mr Edward
Garnier, Mark
Gauke, Mr David
Gibb, Mr Nick
Gilbert, Stephen
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Graham, Richard
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Green, Damian
Greening, Justine
Griffiths, Andrew
Gummer, Ben
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hands, Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Harvey, Nick
Haselhurst, rh Sir Alan
Hayes, Mr John
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howell, John
Hughes, rh Simon
Hunter, Mark
Huppert, Dr Julian
Jackson, Mr Stewart
James, Margot
Javid, Sajid
Johnson, Gareth
Johnson, Joseph
Jones, Andrew
Jones, Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kirby, Simon
Knight, rh Mr Greg
Kwarteng, Kwasi
Laing, Mrs Eleanor
Lamb, Norman
Lansley, rh Mr Andrew
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Lefroy, Jeremy
Leigh, Mr Edward
Leslie, Charlotte
Lewis, Brandon
Lilley, rh Mr Peter
Lloyd, Stephen
Lord, Jonathan
Loughton, Tim
Luff, Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maude, rh Mr Francis
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Mensch, Mrs Louise
Menzies, Mark
Mercer, Patrick
Metcalfe, Stephen
Mills, Nigel
Milton, Anne
Moore, rh Michael
Mordaunt, Penny
Morgan, Nicky
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, Mr Stephen
Offord, Mr Matthew
Ollerenshaw, Eric
Ottaway, Richard
Paice, rh Mr James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penning, Mike
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Raab, Mr Dominic
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Robathan, rh Mr Andrew
Robertson, Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Ruffley, Mr David
Russell, Bob
Rutley, David
Sanders, Mr Adrian
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Sharma, Alok
Shelbrooke, Alec
Simmonds, Mark
Simpson, Mr Keith
Skidmore, Chris
Smith, Miss Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soubry, Anna
Spencer, Mr Mark
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Sturdy, Julian
Swales, Ian
Swayne, Mr Desmond
Swinson, Jo
Swire, rh Mr Hugo
Syms, Mr Robert
Teather, Sarah
Thurso, John
Timpson, Mr Edward
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Robin
Wallace, Mr Ben
Walter, Mr Robert
Ward, Mr David
Watkinson, Angela
Weatherley, Mike
Webb, Steve
Wharton, James
Wheeler, Heather
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Williams, Mr Mark
Williams, Roger
Williams, Stephen
Willott, Jenny
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Stephen Crabb and
James Duddridge
Question accordingly negatived.
28 Jun 2011 : Column 924
28 Jun 2011 : Column 925
28 Jun 2011 : Column 926
Ordered, That further consideration be now adjourned. —(Mr Francois.)
Bill to be further considered tomorrow.
28 Jun 2011 : Column 927
Business without Debate
Delegated Legislation
Motion made, and Question put forthwith (Standing Order No. 118(6)),
That the draft Carbon Budget Order 2011, which was laid before this House on 24 May, be approved.—(Angela Watkinson.)
Motion made, and Question put forthwith (Standing Order No. 118(6)),
That the draft Climate Change Act 2008 (Credit Limit) Order 2011, which was laid before this House on 7 June, be approved.—(Angela Watkinson.)
Motion made, and Question put forthwith (Standing Order No. 118(6)),
That the draft Undertakings for Collective Investment in Transferable Securities Regulations 2011, which were laid before this House on 10 June, be approved.—(Angela Watkinson.)
Petition
Leave to Remain (Sam Fontana Wright)
1.47 am
Andrew Stephenson (Pendle) (Con): Thank you for allowing me to present my petition, Mr Speaker.
Sam, a constituent of mine, has had his application for a long-term visa refused by the UK Border Agency, which plans to send him back to America within days.
The Petition of residents of Pendle, Lancashire, and others,
Declares that the Petitioners believe that Sam Fontana Wright should be allowed leave to remain in Britain.
The Petitioners therefore request that the House of Commons urges the Government to encourage the UK Border Agency to halt his deportation and reconsider his case.
And the Petitioners remain, etc.
28 Jun 2011 : Column 928
Employment (Livingston)
Motion made, and Question proposed, That this House do now adjourn.—(Angela Watkinson.)
1.49 am
Graeme Morrice (Livingston) (Lab): I believe that both you and I have drawn the short straw tonight, Mr Speaker, but I am delighted to be able to initiate the debate, and I am very pleased that it concerns employment in my constituency.
One of the key issues that motivated me—along with many other Labour Members—to become more actively engaged in politics was the corrosive effect of mass unemployment, which reached 22% in my local authority area of West Lothian in the mid-1980s. Action to create job opportunities, especially for young people, in the communities I grew up in and went on to serve as a councillor, a council leader and now an MP, has always been central to my political outlook and activity.
But before I move on to specifics on the future jobs fund and employment in my constituency, it is important to set this debate within the current national context. Youth unemployment in the UK is alarmingly high, with unemployment among 18 to 24-year-olds higher than at any time since 1992. West Lothian also has a higher proportion, at 7.4%, of youth unemployment than the Scottish average of 6.5%.
The House explored the effects of those record levels of youth unemployment in a debate last week, so I will not dwell for long on the details now. However, I was amazed to read in the Library briefing for that debate about the results of a recent poll conducted for The Independent on Sunday. It found that eight out 10 people think it is harder for young people to get a job now than it was 20 years ago under the previous Conservative Government. It also reported that two thirds of the public think that the coalition’s economic policy threatens to
“leave a generation of young people jobless”
and that there is not enough being done to help youngsters into work. That is a damning public verdict on the coalition’s failure to get a grip on this vital issue. It is now clear that jobs are one of the biggest costs of the Government’s cutting too far and too fast.
As we came out of recession, Labour’s No. 1 priority was creating jobs, and by spring 2010 we were turning the corner and unemployment was coming down. Putting young people on the dole is not only a waste of money but a waste of their potential. We believe that getting people back into work is the best way to reduce the deficit. Yet the Government’s poorly targeted spending cuts have led them to axe programmes such as the future jobs fund, resulting in higher unemployment and more people claiming benefits. This, in turn, is making it harder to get the deficit down.
I will now turn to my main points in this evening’s debate—the future jobs fund and employment in Livingston constituency. During my time as the leader of West Lothian council I made economic regeneration and job creation top priorities. As part of that work, I oversaw the establishment of Access2employment, a council service to extend essential employability support to people who need help to get back into work. The Access2employment team delivers employability support to all residents of West Lothian, but with a priority
28 Jun 2011 : Column 929
focus on specific groups who have been identified as disadvantaged. They have very strict and challenging targets, which to date have been consistently achieved or exceeded.
On average, the team will work with 1,500 residents of West Lothian each year and will move at least 50% of them into work or training. There are three dedicated locations where the service can be accessed, including two in my constituency at Craigshill and Broxburn. The team also has lead responsibility for PACE—partnership action for continuous employment—in West Lothian, a partnership of key organisations which provide an immediate response for organisations when redundancies occur.
Support is tailored around the individual so that they are equipped with the employability skills that meet the needs of employers, recognising that one size does not fit all. The service has really come into its own during the difficult economic period, experiencing significant increases in the number of clients it works with over the last few years. In October 2009, the Department for Work and Pensions awarded West Lothian council a future jobs fund contract to create more than 200 jobs for young people by March 2011.
Access2employment has led the delivery of that contract and 211 people aged 18 to 24 have now been found employment opportunities, achieving the FJF target. The fund has supported those young people to gain the confidence and skills boost that they needed to find jobs.
One of those who found employment through the future jobs fund in Livingston was Aileen Ross, who was employed by the West Lothian chamber of commerce. She said of her own experience:
“I feel as though the Future Jobs Fund position gave me the chance I needed, to not just get myself back into work but change my career path in a positive direction. On the whole my experience over the last few months with the future jobs fund has been a positive one and I am very grateful for the opportunity I was given.”
Amber Lees was the 211th, and last, employee under the contract. She is now employed by The Pitstop community facility in Addiewell, a former mining community in my constituency, as a community assistant. She said:
“I really enjoy working at The Pitstop and know that I would not have been able to find a job like this without the future jobs fund.”
Margaret Pow, the manager of The Pitstop, which has been highly supportive of the delivery of the FJF contract, commented:
“The Pitstop would not be able to operate in the way it does without the hard work and dedication of the future jobs funded staff we have here.”
There are dozens of similar success stories, with young people in my constituency and across West Lothian who had struggled to find work after leaving school having now, through the FJF and the expert assistance of Access2employment, found work.
Most crucially, the overall success rate in West Lothian has been remarkable, with about 65% of the young people who completed the programme moving into jobs or training—some 15% more than the national average. The added value provided by Access2employment, and
28 Jun 2011 : Column 930
its long-established expertise and contacts, has clearly been vital in achieving such significant success. The council’s FJF will end completely in September, but where does the scrapping of the FJF leave Aileen, Amber and thousands more like them?
It is clear that the Government moved to axe the FJF at an indecently hasty pace, before all the evidence on its outcomes was available. The Select Committee on Work and Pensions report on youth unemployment and the FJF, published in December last year, concluded:
“While we accept the Government’s need to make savings to address the public spending deficit, it is our view that insufficient information was available to allow the Department to make a decision to terminate the FJF if this decision was based on its relative cost-effectiveness.”
In fact, there is an increasing amount of evidence to suggest that the FJF has generally been successful and has produced positive results for those who have participated in it. Indeed, a new qualitative study backing the success of the FJF was published last month, albeit with little fanfare, by the Department for Work and Pensions itself.
“Customer Experience of the Future Jobs Fund”, a DWP in-house research report, found that the quality of jobs on the FJF was often high, that Jobcentre Plus generally managed it well, and that the programme had been a huge help in securing jobs for the young people who have been through it. The report states:
“A widespread view amongst respondents who had not found work was that their six month post would help to secure another job in the future. Some of the respondents who had been unemployed for many months plus prior to starting FJF described how their frustration and despair had changed into a real sense of hope for their prospects.”
“Overall, the evidence from this study suggests that FJF has been successful in up-skilling and preparing customers for work, particularly in terms of increased confidence and belief in capabilities.”
“for many participants their reported experiences had been to such a high standard, that they could not think of any improvements to the scheme.”
That hardly sounds like a description of an ineffective scheme, as the Government tried to claim the FJF was a year ago when they announced that they were shutting the programme down.
Support for the FJF has also come from the Scottish Council for Voluntary Organisations, which led the Third Sector Consortium in Scotland, one of the largest third sector providers of the FJF in the UK. Its “Future Jobs: Future Communities” report showed that the FJF helped to support vulnerable people, increase recycling, involve more children in sport and support financial inclusion projects. The report highlighted many specific examples of successful placements in the voluntary sector, including three at Cyrenians Farm, a social enterprise, based in Kirknewton in my constituency.
Martin Sime, chief executive of the SCVO, said the FJF was an example of successful public service delivery. In evidence to the Select Committee inquiry last year, the SCVO also stated:
“We are disappointed that the Coalition Government has chosen to end the FJF early, particularly as this decision was taken so swiftly and without being informed by thorough analysis or evaluation of the outcomes achieved by the programme, which we believe to be favourable when compared to mainstream employment initiatives designed for this client group.”
28 Jun 2011 : Column 931
What of the Government’s alternative, the Work programme? It has been dogged by criticism from all quarters, including from the head of a leading welfare-to-work charity, who also happens to be a Conservative peer. Baroness Stedman-Scott of the Tomorrow’s People charity last week publicly expressed strong concerns about how the Work programme is being implemented, and not least about how voluntary sector providers have been treated. She was voicing the widespread concerns of work charities, many of which have lost out to commercial providers in the bidding process for Work programme contracts.
Earlier this month, Tomorrow’s People and the Centre for Public Service Partnerships published a report that suggested that the Work programme will fail if commercial providers do not help jobless people with the worst social disadvantage. Neil Lee, senior economist at the Work Foundation, has supported this concern. He said:
“As the Work Programme is based on payment-by-results, contractors carry the initial risk. There is therefore the danger that private contractors will focus on investing in places where they are more likely to get people into work to secure a return on investment.”
Perhaps the most disturbing concern has been raised by the Employment Related Services Association, which represents most of the organisations awarded prime contracts to run the Work programme. It has claimed that the welfare-to-work industry could shrink by up to a third in the years ahead, with up to 10,000 jobs at risk. That is because the Government’s own predictions suggest that fewer people will be referred to the Work programme than were referred to similar schemes under the Labour Government.
The ERSA’s chief executive, Kirsty McHugh, said that although she and her members support the Work programme and want it to succeed, there is “huge concern” about its implementation. She said:
“The big unknown is quite how many customers are going to be going through the Work Programme. If, as we think it will, that number turns out to be quite low, our estimate is that the workforce employed to deal with those customers will shrink by 25 to 33%.”
That is breaking new ground even for a Tory Government: a jobs programme that is putting those responsible for running it out of work before it has even begun. On a serious note, that highlights the Government’s lack of ambition in tackling youth unemployment.
Labour believes that a repeat of last year’s bankers’ bonus tax, which brought in £3.5 billion, could, on a cautious estimate, raise £2 billion, which should be used to help create 100,000 jobs, build 25,000 affordable homes, rescue construction apprenticeships and boost investment in businesses. The coalition Government’s decision not to repeat last year’s bonus tax means that even with the increase in the levy announced earlier this year, the banks are still getting a tax cut this year as youth unemployment increases.
In Scotland, Labour adopted an incremental and evidence-based approach to the issue before last month’s Scottish Parliament elections. We consulted with relevant organisations on a £40 million Scottish future jobs fund, which would have built on the strengths of the UK Future Jobs Fund and sought to learn from examples of best practice such as those displayed in my local authority area, West Lothian. That approach, which involves working with experts and local communities,
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contrasts starkly with that of the coalition Government. At a national level, instead of consulting those who know best how to get young people into work—the people on the ground, such as the dedicated staff at Access2employment—the Government have shut down a programme that is now proving its value and that could easily have been adapted and further improved. Thousands of young people in Livingston, the rest of West Lothian and up and down the country will wonder why the Government have pulled the rug out from under them in this way just when they are in the greatest need of extra support.
In conclusion, I would like the Minister, who I know has drawn the short straw this evening in having to respond to the debate at this late hour, to tell us why the Government acted in such a precipitous way in axing the future jobs fund before all the evidence was available to make an informed decision. Furthermore, what will the Government do now to ensure that the best aspects of the future jobs fund, as so effectively evidenced in my constituency, in the rest of West Lothian and across the length and breadth of the country, are not lost as the Work programme is rolled out, so that young people in Livingston constituency can continue to benefit from expert support in helping them to find work? I thank you, Mr Speaker, and the two Members who have remained in the House.
2.5 am
The Minister of State, Department for Work and Pensions (Chris Grayling): The hon. Member for Livingston (Graeme Morrice) has, as he rightly said, drawn the short straw this evening, and I am sure that he would have chosen a slightly earlier hour to debate what are certainly important issues. However, I think that, quite appositely, we have finished this evening with a bit of a fairy story, because much of what the hon. Gentleman said was, although well-meaning I am sure, complete nonsense. Let me explain why. Having listened to his remarks for the past few minutes, one would not believe that youth unemployment today is actually 25,000 lower than it was at the general election, that the number of young people on jobseeker’s allowance in his constituency has fallen since the general election or that the trends in the labour market have seen an increase in employment in Scotland. One would not believe that across the country as a whole there are 500,000 more people in employment than there were a year ago and that, very gratifyingly at what are difficult times for the public sector, the private sector is creating jobs at a rate that is significantly faster than the loss of jobs in the public sector. I simply do not recognise the bleak picture that he portrays.
I fully accept that with the challenging youth unemployment in the hon. Gentleman’s constituency and across the country we still have a lot of work to do. That remains a big problem and a big challenge for us. Of course, the figures are somewhat distorted by the bizarre situation that the overall headline youth unemployment figure includes almost 300,000 young people who are in full-time education and who happen to be looking for a part-time job alongside their studies. I do not classify those people as unemployed and I do not think that most reasonable people would. However, the reality is that we still have more than 600,000 young people across the country—many in his constituency,
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some in mine and some in the constituencies of all hon. Members—who are struggling to get into work in what remains a challenging labour market. I accept that there is a job to be done. The progress that has been made is a welcome step in the right direction, but it is only a small step on a long journey to tackling a real problem.
I disagree with the hon. Gentleman’s comments about the future jobs fund. I know that Labour Members believe strongly that that policy was a significant strategy for dealing with youth unemployment, but I disagree. I do not deny that a number of young people benefited from what were six-month placements—it is important to get the jargon right. “Future jobs fund” was not an honest and accurate title for the programme. They are not jobs, but six-month placements almost entirely in the public, voluntary and community sectors. Because of rules relating to European state aid, it was not possible in almost all cases to provide jobs in the private sector. At a time when it is the private sector that is creating job opportunities, that was a big flaw in the future jobs fund.
The other big flaw was cost: it was massively expensive. It cost four times as much to achieve a job outcome as did the Labour party’s own new deal for young people. It was a hugely expensive programme that did not deliver results significantly out of line with previous programmes at a cost that was comparable to previous programmes. At a time when the Government were dealing with a massive deficit—a huge challenge—we had to take some hard decisions, and those hard decisions were about value for money. Early on, we took a straightforward decision that I stand by to this day and which I believe was absolutely the right one: to focus our attention on apprenticeships. I accept that in Scotland, in the hon. Gentleman’s constituency, responsibility for apprenticeships has been devolved to the Scottish Administration. I admired his bravery in referring to the Labour party’s plans prior to the Scottish parliamentary elections, because I am not sure that they were entirely welcomed by the electorate north of the border.
Graeme Morrice: It is probably true to say that the Scottish Labour party was not quite successful in last month’s Scottish parliamentary elections, but that was not because of our policies on jobs, employment, or apprenticeships; most people recognised that those were our top priority. There were other reasons why we did not quite win. I do not think that it was because of our position on getting young people back into employment.
Chris Grayling:
Of course the hon. Gentleman knows more about Scottish political affairs than I do. Looking at the issues from south of the border, I simply observe that it is quite clear that the Labour manifesto for those elections did not capture the attention of those north of the border in the way that he and his colleagues might have wished it to. However, it is certainly the policy of the Administration in Edinburgh to pursue an apprenticeship route. It is very much the view of the Government that apprenticeships offer a much better option for young people. They offer a pathway to much longer-term skill building, and to a real job that can last a number of years. We all hope that in most cases it will carry on beyond the apprenticeship period and become
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long-term employment—in an organisation in the private sector, in most cases, where there is a real chance of growth and opportunity. Sadly, right now, for reasons that we all know and understand, the same growth and opportunity is not shared in the public sector.
That was a very conscious decision, and I was pleased when, earlier this week, my colleague the Minister for Further Education, Skills and Lifelong Learning, in the Department for Business, Innovation and Skills, published figures on the Government’s progress on apprenticeships and set out a quite remarkable increase in the take-up of apprenticeships over the past 12 months. When we add to that the additional apprenticeship places that were announced by the Chancellor of the Exchequer in the Budget, we find that the package of apprenticeships that we are offering, together with the package of apprenticeships that will be set up in Scotland and Wales, will offer young people across the United Kingdom a better option than the future jobs fund.
Graeme Morrice: I am grateful to the Minister for allowing me to intervene a second time. Certainly, I would welcome any increase in the number of apprenticeships for young people. Of course, the Government are building on the strengths of the modern apprenticeship scheme introduced by the Labour Government in this place and the Labour Administration in the Scottish Parliament. What does the Minister say in response to my comments about the criticisms made of the Government’s Work programme by a series of people, including Baroness Stedman-Scott, who was particularly critical of the scheme?
Chris Grayling: I shall go on to talk about the Work programme in a moment, but first let me touch briefly on one other important part of our strategy: the work experience scheme that is being organised through Jobcentre Plus. We believe that one of the key barriers to employment for young people is that age-old problem—they cannot get a job unless they have experience, but they cannot get the experience unless they have a job. We discovered very soon after taking office that under the previous Government, any young person who did a period of work experience would lose their benefits. We have changed that; young people can now do up to eight weeks’ work experience while continuing to claim jobseeker’s allowance. That allows them to get into a company, demonstrate their potential, and get to know the employer and vice versa. We believe that in many cases that will be a bridge into an apprenticeship or full-time employment.
There are already many thousands of young people going into work experience placements under a scheme that we launched about three months ago. We have commitments from employers to tens of thousands of placements over the next 12 months. We believe that that scheme can be a simple, quick vehicle that opens up opportunities for apprenticeships and other employment for young people, and allows them effectively to demonstrate to an employer what they can do, and break down that initial barrier. An employer may say, “Actually, I like this young person; they are doing something for my organisation, and they can make a difference.” That is the second part of our strategy.
As the hon. Member for Livingston rightly said, for those who have been unemployed for a longer period, or who come from a more challenged background, we
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have the Work programme. I am afraid that I simply do not recognise the pessimistic view that he portrays of the programme.
It is undoubtedly the case that there are some issues for voluntary sector organisations in the negotiations with prime contractors, sorting out the best possible deals for themselves. I have been very clear, and I am very clear again tonight on the record, that as far as I am concerned we have recruited a good team led by prime contractors and backed up by teams of organisations—specialist, community, voluntary sector, smaller private sector and public sector, such as local colleges—to deliver the Work programme across the country. We expect those teams to remain intact.
I have no doubt that there will be some to-ings and fro-ings in the negotiations between prime contractors and subcontractors over the next few weeks, but it will not be acceptable for prime contractors to treat their subcontractors as what has been called “bid candy” and to drop them. Any prime contractor that does that can expect to lose its contract. So I do not recognise that there is a deep-rooted problem. Yes, of course there are some to-ings and fro-ings in negotiations; that always happens in a big contractual changeover.
The hon. Gentleman talked about a lack of referrals to the Work programme. I can tell him that already many tens of thousands of people are on the Work programme and are starting to receive support from the providers. One of the bits of feedback that we are getting from providers is how pleased they are that we have delivered the volumes that we promised at the time we promised, in stark contrast to the flexible new deal programme under the previous Government, which was a disaster when it started. The people who were promised to providers did not materialise. Providers found that they did not have the people they had expected. That is not happening under the Work programme. The feedback that we are getting is that providers are pleased with the volumes of people who are waiting for support.
This is the most ambitious back-to-work support programme that this country has ever seen. In terms of numbers, it is bigger than any previous programme. I do not accept any figures that say otherwise. It is available to every single person who is claiming employment and support allowance, and it is available to every single person on jobseeker’s allowance who crosses the threshold of 12 months for an adult jobseeker, nine months for a young person, and three months for somebody who
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comes from a challenged background. Every single one of the people in those categories has access to the Work programme on a scale that has not been seen before in a previous programme.
This radical new approach—payment by results—says to provider organisations large and small, from big multinational companies down to small community projects, all working as a team, “You deliver the support that will work best for the people you are helping, get them back into the workplace, help them stay in work for a period of time that can be as long as two years and three months, and we will pay you on the basis of your success.” I am confident that that will unleash best practice around the industry. These organisations can succeed only if they are excellent at what they do.
The voluntary sector organisations that have real skills have a first-rate opportunity because if they are the best at helping these people into work, they will succeed in the Work programme because their skills will be very much in demand. We have in total 500 voluntary sector organisations across the country which have all signed up to the Work programme. As part of the tendering process, they have signed pieces of paper to say that they are happy with what is on the table. They will now deliver support and expertise to the prime contractors to help the long-term unemployed get back into the workplace in the hon. Gentleman’s constituency, in my constituency and in the constituency of every hon. Member throughout the country.
As of this Thursday, every single part of the country will have been covered by the Work programme on time, as planned. The contracting process has taken place in a very short time by public standards and in many parts of the country is already starting to help people into work. The package of support includes the work experience scheme, our real focus on expanding the number of apprenticeships, the intensive personalised support through the Work programme, and a greater devolution of flexibility and responsibility to the front line in Jobcentre Plus to tailor support in areas where those individual staff are working to the realities of those areas. To be able to look at a constituency like the hon. Gentleman’s and say, “For the shorter-term jobseekers who have not yet accessed the Work programme, what are the extra things we need to do in our area to help our own client base—
2.19 am
House adjourned without Question put (Standing Order No. 9(7)).