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I have a particular reason for wanting to see a cap on the cost of credit. I come from a family of eight kids, and unfortunately my beloved mum was often a victim of door-to-door credit. She took it not to pay for luxury goods, but so that she could afford to buy us things like school blazers and winter coats. She would get a Provident or Sterlers cheque and pay it back on the “never-never”, as it was known colloquially. This meant paying back hundreds of per cent. of the original loan in interest charges, but like millions of others she did not really understand the rudimentary economics and looked only at how much she could afford to pay back each and every week, rather than the interest rate or the cumulative payment total. Unfortunately, she was not unique in this respect and, even four decades on, far too many people are still caught in this poverty trap.

The high cost of credit has not improved much for families at the wrong end of the socio-economic ladder. Home credit lenders often charge astronomical annual percentage rates of up to 3,000% or 4,000%. I had to check those figures, because the current bank base rate is only 0.5%, but I found that interest charges of thousands of per cent. are not uncommon. In fact, the UK’s poorest pay the highest price for credit in Europe. This is an obscene state of affairs and the Government must act. Before we hear the same old mantra from Government Members, I admit that we in the Opposition did not do enough to tackle the issue head-on when we were in power. However, as my hon. Friend the Member for Makerfield (Yvonne Fovargue) rightly pointed out, this is an escalating problem that needs to be tackled immediately.

I urge Members on both sides of the House to support what my hon. Friend the Member for Walthamstow is trying to do to stop this most socially iniquitous of practices. Even Boris supposedly supports measures to protect the financially vulnerable, and if he can do it, there should be nothing stopping Government Members doing the same.

Members on both sides of the House have highlighted the problem and provided examples of the unfairness, but it is worth reiterating that credit lenders can charge, in real terms, £82 in interest and collection charges for every £100 lent. A gentleman came to my constituency advice surgery only last Friday and told me that his wife was suicidal because of the level of debt that they had got themselves into. I highlighted last week in a Westminster Hall debate the fact that the banks are failing to meet the Project Merlin targets for lending and the adverse effect that this is having on the construction sector. The banks are also failing ordinary families as they are refused credit from high street lenders, which often results in them taking the only option left: high-cost lending through payday and doorstep loans and hire purchase.

The rising cost of credit traps those least able to cope with the pressures of economic stagnation as they struggle to make ends meet, and believe me, the VAT increase has not helped those families. Some payday lenders are rubbing their hands at the expansion in their “target audience”, as one put it, 70% of whom have a household income below £25,000. I know that we will never completely stop this most lucrative of immoral trades, but we can certainly put a cap on lending to regulate the total amount that can be charged for supplying credit.

This is one of the occasions on which I do not understand how a proposal could not receive unequivocal support from both sides of the House. I have listened to

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some of arguments against taking action, such as the suggestion that it might make things worse or restrict credit to those who need it, but that is an absolute cop-out with no basis in evidence. Therefore, I ask Government Members to support the new clause to ensure that consumers are protected and simply pay a fair price for credit.

The Financial Secretary to the Treasury (Mr Mark Hoban): I think that the debate has demonstrated the potential for cross-party support for the analysis underpinning the discussion we have had this afternoon, but I gently point out to Opposition Members who seek to turn this into a partisan political issue that their Government had the opportunity over 13 years to tackle this. In fact, we had a debate on it while the Financial Services Act 2010 was going through Parliament, not long before the general election, during which my opposite number at the time ruled out acting on interest rate caps because of the impact of depriving the most vulnerable of credit services. It is not a new issue, or one that is fresh to this Parliament. Ministers in the previous Government were opposed to the idea of caps because, as the hon. Member for Liverpool, Walton (Steve Rotheram) indicated, it could restrict the supply of credit, forcing those who need it into the hands of illegal moneylenders, an outcome that Members on both sides would not want to see.

Let us be clear that credit can be a good and positive force that enables people to meet needs when there is a sudden shock, such as an unexpected expense or a cut in income, but it must be used sensibly and sustainably. When people decide to borrow, they must be mindful of what that means for them and realistic about their ability to repay the loan. That is true whether the loan is over 10 years, five years or a matter of days, as is the case with some instant or payday loans. However, all lenders have a responsibility in this regard. Lending more than borrowers can afford to repay does not benefit anyone. Under the recently introduced consumer credit directive, all lenders, including high-cost credit lenders, must ensure that when they decide to advance a loan they do so after making a thorough assessment of the lender’s ability to repay.

We know that consumer debt grew significantly under the previous Government, more than doubling from £620 billion in 2000 to more than £1.4 trillion by May 2010. Some of this debt is now being repaid as consumers begin to come to terms with their borrowing, with the amount of unsecured debt reducing in the past two years. Although much of this debt will be repaid without any problems, some borrowers get into difficulty. Lenders have a responsibility to help customers and treat them fairly when they get into difficulties with loans, not push them further into debt. Continuing to add excessive arrears and default charges is a lose-lose situation; the debt increases out of all proportion to the amount borrowed, the lender is less likely to be repaid and the borrower may have difficulty borrowing again. Lenders should work with borrowers, not against them.

We should all be concerned about people borrowing at high rates of interest. However, the high-cost credit market, whatever its faults, provides a service for those who cannot get credit from any other source. We should

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be careful about describing high-cost credit providers as legal loan sharks. We all recognise from our own communities that real loan sharks are far worse, resorting to violence and intimidation to recover their debts. High-cost lenders are licensed and operate within a regulatory framework, which provides some recourse when things go wrong.

We should be clear that action has been taken over the past year to improve consumer protection in this area. First, under the consumer credit directive, which came into force earlier this year, consumers now have a right to withdraw from any credit agreement within 14 days. If they do so, they have to pay back only the money lent and the interest accrued over that time. Secondly, consumers have a right to repay a loan early at any time, in part or in full. Thirdly, lenders now have to provide information in a standard format so that borrowers can easily compare the costs of different loans. Improving the transparency of information will help consumers. Fourthly, lenders must conduct a full credit assessment before advancing any loan. Lenders will also have to explain the key features of the credit agreement.

In addition, the Office of Fair Trading has recently published its guidance on irresponsible lending, which clearly sets out that deceitful, oppressive or otherwise unfair lending practices are not acceptable. The OFT, which is responsible for the regulation of credit—something that whoever tabled the new clause seemed to forget—has the power to remove the licence of those who breach the irresponsible lending guidance.

Much good work is going on, including the excellent work of credit unions, which many of my hon. Friends have mentioned. It is a shame that the hon. Member for Edinburgh East (Sheila Gilmore) is not in her place. My hon. Friend the Member for East Hampshire (Damian Hinds) is right that there is £73 million to help to expand and modernise credit unions. The money that the previous Government put into credit unions is diminishing, because the money that credit unions were able to earn on the debt was lower than the default rate on the loans given. I therefore welcome the money that the Department for Work and Pensions has found to strengthen credit unions.

As a number of hon. Members have said, we are reviewing the wider consumer credit landscape. At the end of last year, the Treasury and the Department for Business, Innovation and Skills published a joint call for evidence on the consumer credit and personal insolvency review, which covers all aspects of the consumer credit life cycle, including what happens when things go wrong. This is an opportunity to ensure that the regulatory framework is fair to consumers and the industry. Part of that review focuses on the high-cost credit market. Following an OFT review that took place under the previous Government, we have asked for evidence on five of its recommendations.

Stella Creasy: Will the Minister give way?

Mr Hoban: Let me just finish the recommendations, and then I will give way.

The first recommendation was to provide information on high-cost credit loans to consumers through price comparison websites. The second was to introduce a “wealth warning” on high-cost credit products. The

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third was to collect essential information on the high-cost credit sector so that the OFT can track developments. The fourth was for the Government and industry to develop a code of practice. The final recommendation was to work with credit reference agencies to explore ways in which payday lenders could provide suitable information about the payment performance of their customers. That would help those who use high-cost credit to build up a credit history that they can use to access more mainstream lenders.

Stella Creasy: I wonder whether the Minister can deal with an anomaly that has driven the new clause. I received a letter on 25 May, which set out that the high-cost credit market was not specifically included in the consumer credit review. Is the Treasury taking the lead on this and does BIS need to follow? Will the Minister clarify this matter, because the letter from the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey) said that BIS was not looking at this area per se?

7.15 pm

Mr Hoban: Her Majesty’s Treasury and BIS have joint responsibility for this matter, which is why we issued a joint call for evidence. As I said, the consultation includes gathering further thoughts on the five areas from the OFT review.

The Government will respond to the review in the coming weeks and we are still assessing the evidence that has been provided. I can tell the House that a number of responses have been received on introducing a cap on interest rates, including from Members of this House. This is clearly an area that we will consider properly and carefully. We have been clear that we are not afraid to take action where there is evidence of consumer detriment.

I turn to the new clause that was tabled by the shadow Chancellor and a number of hon. Members. It asks the Government to review the impact of all taxation measures on lenders who are seen to engage in high-cost lending. I appreciate that this may be a probing new clause. I pointed out in Committee that the new clause as then drafted would lead to the perverse outcome of forcing up the cost of credit. The new clause before us has similar defects and unintended consequences.

I will point out the defects first. It is the Office of Fair Trading that regulates consumer credit, not the FSA. I would have thought that a Member who is so proud of her reputation for doing the homework would have got that right. It is well known that the OFT regulates high-cost credit.

Secondly, unlike the new clause tabled in Committee, which focused on the bank levy, this new clause looks at tax measures that are applicable to high-cost credit lenders. It would require each tax measure in the Budget to be assessed to see whether it is applicable. I listened carefully to the speeches of the hon. Members for Nottingham East and for Walthamstow—she is probably tweeting about this as we speak—to find out what tax measures they had in mind. I did not hear a single tax proposal being put forward by Opposition Members. [ Interruption. ] The hon. Gentleman says that we should propose the measures. I have been listening carefully for any sensible tax proposals from Opposition Members, but I am yet to hear one.

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My concern is that there is a degree of price elasticity for those who use high-cost credit. Such people pay for high rates on their borrowing. If we increased taxes on high-cost credit, the costs would be borne by the borrowers through higher charges and the benefit would be gained by the Exchequer. That would run counter to the interests of those who use high-cost credit.

Chris Leslie rose—

Stella Creasy rose—

Mr Hoban: This is an embarrassment of riches. I will go for the hon. Gentleman, who I think is in charge of this new clause.

Chris Leslie: If taxes and levies are invariably passed on to the consumer, will the Minister elaborate on the banking levy? Presumably he feels that that, too, will be passed straight through to the consumer. Are there not other tax measures that disincentivise or demerit activities?

Mr Hoban: There are a number of taxes that disincentivise certain activities. We could be here all day identifying them. The challenge is to what extent an increase in tax is passed on to the consumer and to what extent it is borne by the shareholders. There is a lot of evidence that in areas where borrowers are relatively insensitive to price, such as payday lending, the additional costs of tax measures would be passed on to the consumer. I am yet to be persuaded that that would not be the case. It might help if the Opposition had some concrete proposals on tax that could be assessed, but so far they have not. Perhaps the hon. Member for Walthamstow has a proposal.

Stella Creasy: I am saddened that the Minister did not feel that any proposals were made in the debate. I thought I had caught his eye when I talked about whetting his appetite with the excess profits that companies make. I made a specific proposal on that, which I will repeat for his benefit. Provident has taken £675 million in excess profit out of low-income communities since 2005-06, according to the Competition Commission’s investigations. Perhaps he could look at taxing the excess profits that these companies are making. Does he agree with that proposal?

Mr Hoban: I listened carefully to that point, and the hon. Lady again demonstrated the problem that she is long on analysis, but short on solutions. She talked about excess profits, but of course there is a range of solutions for that, one of which is to increase competition in the market to force prices down. I am not sure that a windfall tax, which I think is what she is proposing, would have the impact that she expects.

Mark Durkan: The Financial Secretary suggests that taxation would inevitably be passed on to consumers, but Ministers insisted not so long ago that the North sea tax would not be passed on to consumers. The Chancellor himself was very clear that it would not, and that he had means and measures to ensure that it could not be. Many Government Members said that they were happy that consumers would not pay the VAT increase,

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because hard-pressed businesses would just have to absorb it. Why are the Government protecting the predatory credit sector?

Mr Hoban: The hon. Gentleman needs to look carefully at the impact of tax in different sectors. Just because one rule applies to one sector does not mean that it applies to others. We know that there is real concern, for example, that if we forced excise duty up too high, people would resort to smuggling to evade it. The impact varies from tax to tax and from area to area, and we need to consider which measures will be effective.

There are broader concerns about how the Opposition want to use tax. As I said, tax is used to change behaviour from time to time, but it is a blunt instrument, and if it is not properly thought through it can lead to perverse outcomes. An increased rate of tax on lenders would not have any obviously positive impact on how consumers are treated. Studies from other areas show that lenders will find ways to circumnavigate regulations and pass costs on to borrowers. A different tax rate for those businesses would be detrimental to consumers and would raise the cost of providing credit to those who may be unable to access mainstream credit.

Members have a responsibility to take seriously the potential for such measures to drive lending underground. I am sure that no one in the House would like to see a rise in illegal loan sharking, which can so devastate lives. The risks to individuals’ financial and personal well-being would be increased by loan sharks, who do not follow regulations or take legal action when debts remain unpaid. They use whatever means they can to recover their money, often forcing borrowers into more debt, or much worse. The provision of short-term credit can prevent financial exclusion, and it has allowed more consumers to access credit in a regulated market.

A number of comments have been made about an interest rate cap. There were three separate reviews under the previous Administration that considered, among other things, price controls in the high-cost credit market in the UK. They all came to a similar conclusion—that introducing price controls may lead to unintended consequences that would not be beneficial to consumers. The OFT review found that

“introducing price controls would not be an appropriate solution to the particular concerns we have identified in this market”,

and that

“developing a system to enforce and monitor price controls or interest rate caps in the UK would be complex, expensive and difficult to administer”.

In Committee, the hon. Member for Walthamstow mentioned a recent European Commission study published at the start of this year, but it found that restrictions on interest rates could deny people access to small amounts of credit, do not reduce overall average interest rates and lead to increased fees and charges being imposed by lenders. The idea of a cap on the total cost of credit sounds appealing at first, but it would have its consequences.

Oliver Heald: Does my hon. Friend agree that two initiatives that were described earlier are valuable? One is credit unions—my hon. Friend the Member for East Hampshire (Damian Hinds) chairs the all-party group that is promoting their work—and the other is financial

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education for young people, which my hon. Friend the Member for North Swindon (Justin Tomlinson) and his all-party group are pursuing vigorously. Are those not two positive things that the House can get behind?

Mr Hoban: Yes, my hon. Friend is absolutely right. The provision of better education, information and guidance to help people manage their money is extremely valuable. That is why we have been very supportive of the Money Advice Service in its work to help improve financial capability and capacity.

Sustainable solutions to the issues raised by the Opposition are not simple or obvious. As my hon. Friend the Member for North Swindon (Justin Tomlinson) said, an individual making the minimum repayment on their credit card could be subject to a higher total cost of credit than someone using payday lenders. The vast majority of people who borrow from payday lenders and then re-borrow pay off the amount that they borrowed by the third time. That shows that careful and considered thought needs to be given to the impact on consumers of a cap on the total cost of credit, and how it would be implemented in practice. The majority of available research focuses on interest rate restrictions rather than such a cap, but some of the same challenges apply.

We need to gather evidence before we introduce new rules, or else risk unintended consequences. That was why we launched the consumer credit and personal insolvency review, and we are considering carefully the evidence that has been provided. The Government will announce the next stage shortly, and are committed to taking action when we can be sure that it will be effective. The Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), and I will continue to engage in the matter, along with the hon. Member for Walthamstow. However, I am afraid the new clause is not the right way to take things forward. It is flawed in both detail and effect. We need sensible, well-thought-through interventions to improve the functioning of high-cost credit markets and get better outcomes for consumers. The new clause would not achieve that, and I ask the Opposition to withdraw it.

I know that it cannot be easy for the Opposition to work with the Government on this issue and appear to concede on the new clause. It could seem like a climbdown for them to accept that more work is needed before action is taken, but that is the sensible, responsible approach.

Chris Leslie: I am sorry that the Financial Secretary has taken that attitude to the new clause, which is pretty innocuous in calling for a review. We have not put specific proposals in it, because we thought that in the spirit of cross-party working it would be useful to set up provisions to allow the Treasury and the OFT, working together in harmony, to work through the options and possible policy devices. Asking for a review on an extremely serious issue such as this is a bit like motherhood and apple pie; it really should not be objected to.

Tracey Crouch rose

Chris Leslie: I am sure the hon. Lady will not object to a review.

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Tracey Crouch: Will the hon. Gentleman acknowledge that a review is already under way, and that all these issues are being considered as we speak? The new clause would serve only to delay the outcome of that review.

Chris Leslie: I must correct the hon. Lady. I know that there is a review of sorts going on, but it relates to credit card lending and high bank charges on lending. The letter that my hon. Friend the Member for Walthamstow (Stella Creasy) received in May from the Under-Secretary said that the high-cost credit market

“was not specifically included in the call for evidence”

for the current review. That was what the letter of 25 May said—from the same Minister, incidentally, who refused to meet my hon. Friend.

The Financial Secretary is far too relaxed about this issue, and the Government are not exercised enough about it.

Andrew Percy rose—

Chris Leslie: Members of all parties, including the hon. Gentleman, to whom I may give way in a moment, have made the point that there is great concern among our constituents in our surgeries about the real suffering and punitive charges that they sometimes face. The organisations in question admittedly engage in legal lending, but their activity feels immoral to many of us.

My hon. Friend the Member for Makerfield (Yvonne Fovargue) said that help from the financial inclusion fund ought to be there for our constituents. The Minister tried to explain that that fund will remain for another nine months, but as my hon. Friend said, it will end, and for those who struggle even to open the envelopes containing the bills as they stack up, there is no substitute for such face-to-face advice. The Government need to do better to ensure that face-to-face advice services remain and do not fall away when the cuts to them are compounded by local authority cuts.

7.30 pm

The Minister said, “Oh well, the previous Administration ruled out interest rate caps,” and castigated them for that. The point is that we are talking not about one route or policy solution today. We need a thorough review that deals specifically with high-cost credit markets. The current joint OFT and Treasury review does not do that. His reasons for resisting the new clause are the typical civil service ones—pointing out that the proposal refers to the Financial Services Authority rather than to the OFT is pretty pedantic. He also said that the proposal does not list specific policy elements. He rules out tax as a lever, but I do not say that a tax measure is absolutely necessary in this case; I am saying that it could be. We want him to lead a review to find out.

The Minister’s complacency is not good enough. Vulnerable people in this society are suffering because of the high punitive charges that they unfairly face. Some of the very poorest in our society are suffering. We need action now, and we have tried our best to offer the Minister a device that would allow him to get on with reviewing the levers that could make a difference. He refuses to do that and throws the proposal back in our face. For that reason, surely, we ought to press the new clause to a Division.

4 July 2011 : Column 1298

Question put, That the clause be read a Second time.

The House divided:

Ayes 228, Noes 273.

Division No. 312]

[7.31 pm


Abbott, Ms Diane

Abrahams, Debbie

Ainsworth, rh Mr Bob

Alexander, rh Mr Douglas

Alexander, Heidi

Ali, Rushanara

Allen, Mr Graham

Ashworth, Jon

Austin, Ian

Bailey, Mr Adrian

Bain, Mr William

Balls, rh Ed

Banks, Gordon

Barron, rh Mr Kevin

Beckett, rh Margaret

Begg, Dame Anne

Bell, Sir Stuart

Benn, rh Hilary

Benton, Mr Joe

Berger, Luciana

Betts, Mr Clive

Blears, rh Hazel

Blenkinsop, Tom

Blunkett, rh Mr David

Bradshaw, rh Mr Ben

Brennan, Kevin

Brown, rh Mr Gordon

Brown, Lyn

Brown, rh Mr Nicholas

Brown, Mr Russell

Bryant, Chris

Buck, Ms Karen

Burden, Richard

Burnham, rh Andy

Byrne, rh Mr Liam

Campbell, Mr Alan

Campbell, Mr Ronnie

Caton, Martin

Chapman, Mrs Jenny

Clark, Katy

Clarke, rh Mr Tom

Clwyd, rh Ann

Coaker, Vernon

Coffey, Ann

Connarty, Michael

Cooper, Rosie

Cooper, rh Yvette

Corbyn, Jeremy

Crausby, Mr David

Creagh, Mary

Creasy, Stella

Cruddas, Jon

Cryer, John

Cunningham, Alex

Cunningham, Mr Jim

Cunningham, Tony

Curran, Margaret

Dakin, Nic

Danczuk, Simon

Darling, rh Mr Alistair

Davidson, Mr Ian

Davies, Geraint

De Piero, Gloria

Denham, rh Mr John

Docherty, Thomas

Donohoe, Mr Brian H.

Doran, Mr Frank

Doyle, Gemma

Dromey, Jack

Dugher, Michael

Durkan, Mark

Eagle, Ms Angela

Eagle, Maria

Edwards, Jonathan

Efford, Clive

Elliott, Julie

Engel, Natascha

Esterson, Bill

Farrelly, Paul

Field, rh Mr Frank

Fitzpatrick, Jim

Flello, Robert

Flint, rh Caroline

Flynn, Paul

Fovargue, Yvonne

Francis, Dr Hywel

Gapes, Mike

Gardiner, Barry

Gilmore, Sheila

Glass, Pat

Glindon, Mrs Mary

Godsiff, Mr Roger

Goggins, rh Paul

Goodman, Helen

Greatrex, Tom

Green, Kate

Greenwood, Lilian

Griffith, Nia

Gwynne, Andrew

Hain, rh Mr Peter

Hamilton, Mr David

Hamilton, Fabian

Hanson, rh Mr David

Harman, rh Ms Harriet

Healey, rh John

Hendrick, Mark

Hepburn, Mr Stephen

Heyes, David

Hillier, Meg

Hilling, Julie

Hodge, rh Margaret

Hodgson, Mrs Sharon

Hopkins, Kelvin

Howarth, rh Mr George

Irranca-Davies, Huw

Jackson, Glenda

James, Mrs Siân C.

Jamieson, Cathy

Jarvis, Dan

Johnson, rh Alan

Johnson, Diana

Jones, Graham

Jones, Helen

Jones, Mr Kevan

Jones, Susan Elan

Joyce, Eric

Kaufman, rh Sir Gerald

Keeley, Barbara

Kendall, Liz

Khan, rh Sadiq

Lammy, rh Mr David

Lavery, Ian

Lazarowicz, Mark

Leslie, Chris

Lewis, Mr Ivan

Lloyd, Tony

Llwyd, rh Mr Elfyn

Love, Mr Andrew

Lucas, Caroline

Lucas, Ian

MacNeil, Mr Angus Brendan

Mactaggart, Fiona

Mahmood, Shabana

Marsden, Mr Gordon

McCabe, Steve

McCann, Mr Michael

McCarthy, Kerry

McClymont, Gregg

McDonnell, John

McFadden, rh Mr Pat

McGovern, Alison

McGovern, Jim

McGuire, rh Mrs Anne

McKechin, Ann

McKinnell, Catherine

Meacher, rh Mr Michael

Meale, Sir Alan

Mearns, Ian

Miliband, rh David

Miller, Andrew

Mitchell, Austin

Morden, Jessica

Morrice, Graeme


Morris, Grahame M.


Mudie, Mr George

Munn, Meg

Murphy, rh Paul

Murray, Ian

Nandy, Lisa

Nash, Pamela

O'Donnell, Fiona

Onwurah, Chi

Osborne, Sandra

Owen, Albert

Pearce, Teresa

Perkins, Toby

Pound, Stephen

Raynsford, rh Mr Nick

Reed, Mr Jamie

Reeves, Rachel

Reynolds, Emma

Reynolds, Jonathan

Riordan, Mrs Linda

Robinson, Mr Geoffrey

Rotheram, Steve

Roy, Mr Frank

Roy, Lindsay

Ruane, Chris

Sanders, Mr Adrian

Sarwar, Anas

Seabeck, Alison

Sharma, Mr Virendra

Sheridan, Jim

Shuker, Gavin

Simpson, David

Skinner, Mr Dennis

Slaughter, Mr Andy

Smith, rh Mr Andrew

Smith, Angela

Smith, Owen

Spellar, rh Mr John

Straw, rh Mr Jack

Stringer, Graham

Stuart, Ms Gisela

Sutcliffe, Mr Gerry

Thomas, Mr Gareth

Thornberry, Emily

Timms, rh Stephen

Trickett, Jon

Turner, Karl

Twigg, Stephen

Umunna, Mr Chuka

Vaz, rh Keith

Vaz, Valerie

Watts, Mr Dave

Weir, Mr Mike

Whiteford, Dr Eilidh

Whitehead, Dr Alan

Wicks, rh Malcolm

Williams, Hywel

Williamson, Chris

Winnick, Mr David

Winterton, rh Ms Rosie

Wishart, Pete

Woodcock, John

Woodward, rh Mr Shaun

Wright, David

Wright, Mr Iain

Tellers for the Ayes:

Mark Tami and

Phil Wilson


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

Barker, Gregory

Baron, Mr John

Barwell, Gavin

Bebb, Guto

Beith, rh Sir Alan

Bellingham, Mr Henry

Beresford, Sir Paul

Berry, Jake

Bingham, Andrew

Binley, Mr Brian

Birtwistle, Gordon

Blackman, Bob

Blunt, Mr Crispin

Boles, Nick

Bone, Mr Peter

Bottomley, Sir Peter

Bradley, Karen

Brady, Mr Graham

Brake, Tom

Bray, Angie

Brazier, Mr Julian

Brine, Mr Steve

Brokenshire, James

Brooke, Annette

Bruce, Fiona

Bruce, rh Malcolm

Buckland, Mr Robert

Burley, Mr Aidan

Burns, rh Mr Simon

Burrowes, Mr David

Burt, Lorely

Byles, Dan

Cable, rh Vince

Cairns, Alun

Campbell, rh Sir Menzies

Carmichael, rh Mr Alistair

Carmichael, Neil

Carswell, Mr Douglas

Cash, Mr William

Chishti, Rehman

Clappison, Mr James

Clark, rh Greg

Clarke, rh Mr Kenneth

Clifton-Brown, Geoffrey

Coffey, Dr Thérèse

Collins, Damian

Colvile, Oliver

Cox, Mr Geoffrey

Crabb, Stephen

Crockart, Mike

Crouch, Tracey

Davies, David T. C.


Davies, Glyn

Davies, Philip

de Bois, Nick

Djanogly, Mr Jonathan

Doyle-Price, Jackie

Drax, Richard

Duddridge, James

Duncan Smith, rh Mr Iain

Ellis, Michael

Ellison, Jane

Elphicke, Charlie

Eustice, George

Evans, Graham

Evans, Jonathan

Evennett, Mr David

Fabricant, Michael

Featherstone, Lynne

Field, Mr Mark

Foster, rh Mr Don

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

Goodwill, Mr Robert

Graham, Richard

Grant, Mrs Helen

Gray, Mr James

Grayling, rh Chris

Greening, Justine

Grieve, rh Mr Dominic

Griffiths, Andrew

Gyimah, Mr Sam

Hames, Duncan

Hammond, rh Mr Philip

Hammond, Stephen

Hancock, Mr Mike

Harper, Mr Mark

Harrington, Richard

Harris, Rebecca

Hart, Simon

Haselhurst, rh Sir Alan

Hayes, Mr John

Heald, Oliver

Heath, Mr David

Heaton-Harris, Chris

Hemming, John

Henderson, Gordon

Hendry, Charles

Hinds, Damian

Hoban, Mr Mark

Hollingbery, George

Hollobone, Mr Philip

Holloway, Mr Adam

Hopkins, Kris

Horwood, Martin

Howell, John

Hughes, rh Simon

Huhne, rh Chris

Huppert, Dr Julian

Hurd, Mr Nick

James, Margot

Javid, Sajid

Jenkin, Mr Bernard

Johnson, Gareth

Johnson, Joseph

Jones, Andrew

Jones, Mr David

Jones, Mr Marcus

Kawczynski, Daniel

Kirby, Simon

Laing, Mrs Eleanor

Lancaster, Mark

Lansley, rh Mr Andrew

Latham, Pauline

Laws, rh Mr David

Leadsom, Andrea

Lee, Jessica

Lee, Dr Phillip

Lefroy, Jeremy

Leigh, Mr Edward

Letwin, rh Mr Oliver

Lewis, Brandon

Lewis, Dr Julian

Liddell-Grainger, Mr Ian

Lilley, rh Mr Peter

Lopresti, Jack

Loughton, Tim

Luff, Peter

Lumley, Karen

Main, Mrs Anne

Maude, rh Mr Francis

McCartney, Jason

McCartney, Karl

McIntosh, Miss Anne

McLoughlin, rh Mr Patrick

McPartland, Stephen

McVey, Esther

Mensch, Louise

Menzies, Mark

Metcalfe, Stephen

Miller, Maria

Mills, Nigel

Mordaunt, Penny

Morgan, Nicky

Morris, Anne Marie

Morris, David

Morris, James

Mosley, Stephen

Mowat, David

Mulholland, Greg

Munt, Tessa

Murray, Sheryll

Murrison, Dr Andrew

Neill, Robert

Newton, Sarah

Nokes, Caroline

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

Raab, Mr Dominic

Randall, rh Mr John

Redwood, rh Mr John

Rees-Mogg, Jacob

Reevell, Simon

Reid, Mr Alan

Robathan, rh Mr Andrew

Robertson, Mr Laurence

Rogerson, Dan

Rudd, Amber

Russell, Bob

Rutley, David

Sandys, Laura

Scott, Mr Lee

Selous, Andrew

Shapps, rh Grant

Sharma, Alok

Shepherd, Mr Richard

Simmonds, Mark

Simpson, Mr Keith

Skidmore, Chris

Smith, Miss Chloe

Smith, Henry

Smith, Julian

Smith, Sir Robert

Soames, Nicholas

Soubry, Anna

Spelman, rh Mrs Caroline

Spencer, Mr Mark

Stephenson, Andrew

Stevenson, John

Stewart, Bob

Stewart, Rory

Streeter, Mr Gary

Stride, Mel

Stunell, Andrew

Sturdy, Julian

Swayne, Mr Desmond

Swinson, Jo

Syms, Mr Robert

Timpson, Mr Edward

Tomlinson, Justin

Tredinnick, David

Turner, Mr Andrew

Tyrie, Mr Andrew

Uppal, Paul

Vara, Mr Shailesh

Vickers, Martin

Villiers, rh Mrs Theresa

Walker, Mr Charles

Walker, Mr Robin

Wallace, Mr Ben

Ward, Mr David

Watkinson, Angela

Wharton, James

Wheeler, Heather

White, Chris

Whittaker, Craig

Whittingdale, Mr John

Wiggin, Bill

Willetts, rh Mr David

Williams, Mr Mark

Williams, Roger

Williams, Stephen

Williamson, Gavin

Willott, Jenny

Wilson, Mr Rob

Wollaston, Dr Sarah

Wright, Jeremy

Wright, Simon

Zahawi, Nadhim

Tellers for the Noes:

Norman Lamb and

Mr Philip Dunne

Question accordingly negatived.

4 July 2011 : Column 1299

4 July 2011 : Column 1300

4 July 2011 : Column 1301

New Clause 12

Report on capital allowances

‘The Chancellor shall direct the Office of Tax Simplification to report by 31 March 2012 on the options for simplifying or replacing the capital allowances regime with a view to ensuring businesses obtain tax relief for capital assets over a period more closely matched to the useful life of those assets.’.—(Nigel Mills.)

Brought up, and read the First time.

7.45 pm

Nigel Mills (Amber Valley) (Con): I beg to move, That the clause be read a Second time.

Madam Deputy Speaker (Dawn Primarolo): With this it will be convenient to discuss the following:

4 July 2011 : Column 1302

New clause 14—Group filing for corporation tax—

‘The Chancellor shall direct the Office of Tax Simplification to report by 31 March 2012 on the potential for the introduction of a consolidated corporation tax filing for UK-resident companies meeting the current definition of a group for corporation tax purposes, to include an assessment of the potential cost savings for companies and HMRC, and the potential for reducing tax avoidance.’.

Amendment 15, in clause 4, page 2, line 16, leave out ‘is treated as having come into force on 1 April 2011’ and insert

‘shall come into effect when legislation shall have been enacted requiring that all public limited companies registered in the United Kingdom shall be required to submit the arrangements for the payment of salaries and bonuses of their directors to a binding vote of approval by their shareholders at an Annual General Meeting.’.

Amendment 20, page 2, line 16, leave out ‘is treated as having come into force on 1 April 2011’ and insert

‘shall come into effect when legislation shall have been enacted requiring all public limited companies registered in the United Kingdom to publish the current salaries and bonuses of their directors.’.

Amendment 51, in clause 7, page 4, line 6, at end insert—

‘(10A) The Chancellor shall produce, before 30 August 2011, a report on the Government’s discussions with the industry on the implementation of the increased charge’.

Amendment 17, in clause 42, page 27, line 4, after ‘appoint’, insert

‘after a Report has been submitted to the House of Commons detailing the number of EIS schemes previously approved, their total cost in terms of tax relief, the number of jobs created by the companies enjoying such relief and the number of companies that failed subsequent to relief being granted allowing for an estimate to be made of the cost of each job created under the terms of this scheme when compared to the cost of tax relief given.’.

Amendment 9, in clause 43, page 27, line 35, at end insert—

‘(11A) In section 1052 in subsection (2) after paragraph (a) insert—

“(e) incurred on premises costs

(f) incurred on design costs

(g) incurred on patent, trade mark, registered design, copyright, design right or plant breeder’s right (see section 1139)”.

(11B) After section 1142 add—

“1142A Premises costs

(1) In this part “premises costs” means rents and business rates costs of the studio where R&D is undertaken.

1142B Design costs

‘(1) In this Part “design costs” means—

(a) user interface costs,

(b) user testing costs,

(c) aesthetic costs,

(d) new business model costs.

(2) In subsection (1)(a) “user interface costs” means—

(a) costs occurred from designing the visual and functional appearance of the application,

(b) costs occurred from designing the code that reacts to user inputs.

(3) In subsection (1)(b) “user testing costs” means—

(a) costs occurred during product testing.

(4) In subsection (1)(c) “aesthetic costs” means—

(a) costs occurred from the artistic design of the product.

4 July 2011 : Column 1303

(5) In subsection (1)(d) “new business model costs” means—

(a) marketing of building a new business monetisation model,

(b) marketing of testing a new business monetisation model.”’.

Nigel Mills: The aim of new clauses 12 and 14 is to encourage the Government to move a little faster in simplifying our corporation tax system, which is far too complex to meet modern needs.

On a day on which we have celebrated the 100th birthday of Ronald Reagan, it is appropriate to start with a quote from that great tax reformer. He said in 1985:

“Later in this session of Congress, we’ll be presenting our proposals for tax reform that will lower tax rates, broaden the tax base and make the tax code simpler and fairer. We’re looking at a top rate on personal income taxes of 35 percent, very possibly less. And we’ll be sure that incentives for capital formation are maintained. And I just want to reemphasise one thing: Tax reform will not be a tax increase in disguise.”

Those words are as relevant today as they were 26 years ago. To be fair, the Government have received that message. The Exchequer Secretary recently said:

“Taxation in Britain is far too complex. A clearer and more straightforward tax system will bring benefits for tax payers, tax professionals and the Government alike.”

I hope that the whole House would entirely agree with those sentiments.

The Government have taken welcome steps in the right direction. We have established the Office of Tax Simplification, and I commend the work it has done. In fact I am keen to ensure that we get maximum value out of it by giving it a bit more work to do under these two new clauses. At a time when we are assessing the value of all our quangos and outside bodies, the more work we get out of them the better.

We need to hasten the work of the OTS along. We are already a year into this Parliament and we rightly have a process now whereby we consult in detail on major changes to the tax system. If we do not bring forward our proposals in the next year or so, we will struggle to get any benefit from them in this Parliament, and that is the direction in which I am encouraging the Government to go tonight.

The Exchequer Secretary has made such a great start in tax simplification that he has had the honour of being named the tax personality of the year. We could start making various jokes about accountants’ personalities, but we would probably cause grave offence to all my former colleagues, so perhaps we should leave that subject. We have had a consultation on removing a few simple tax allowances, such as the reliefs for angostura bitters and black beer—if going that far gets the Minister that award, just think what garlands could be thrown at his feet if he tackled some of the real complexities of our tax system!

It was just last week that the Government announced the next areas that they want the OTS to consider, rightly including the taxation of pensioners and employment taxes. However, at a time when we need business to drive the growth that will sort out the deficit and our economy, we need to look at the taxes that encourage—or perhaps discourage—business from making the investment that we need. That is why new clause 12 would require

4 July 2011 : Column 1304

the OTS to consider ways to simplify the capital allowance system, or to replace it if simplification is not possible. If the Minister questions why we need that provision, I draw his attention to the Bill, in which we have had to introduce various measures that tinker with the capital allowance system, because we know it is out of date and not working. It is hard to imagine that anyone would design from scratch a system in which we have to introduce a modification to ensure a different system for short-life assets and then we have to change the definition of short-life assets to eight years. I wonder how often businesses invest in assets that they expect to have a useful life of eight years, never mind any longer. That is a clear sign that the system is not working, out of date and far too complex. It needs to change.

I am sure that Members have taken a fascinating look through this country’s tax code and seen how many types of capital allowances we now have. We have a basic regime—the general pool—which from next year will produce an allowance on a reducing balance basis of 18%, meaning that it will take a long time for a business to get the full economic relief for its investment. It would take well in excess of six years to get the majority of that relief. We then have the short-life asset pool for assets that a business thinks might have a life of less than eight years. That effectively means that it has to track those assets and work out when to scrap or dispose of them to get the final balance. We also have a long-life asset regime for assets that have a particularly long life, but which are not suitable for the general pool. Furthermore, we have different rules for cars and environmentally friendly assets, and completely different rules for assets on a finance lease, where effectively we allow account depreciation.

This range of reliefs for simple investments in plant and machinery beggars belief. Frankly, if I was an overseas business or someone with some cash wanting to start a business in the UK, and if I wanted to invest in a heavy manufacturing business, was investing in large numbers of plant and equipment and went to my adviser and said, “I want to invest in the UK. Can you tell me how I get relief for all this investment?” and I got the answer, “Well, it depends on whether it’s a long-life asset, a short-life asset, an ordinary asset, an environmentally friendly asset, and it depends whether you lease it, hire purchase or buy it outright”, I would start to wonder whether it was really worth the effort. Surely there must be a simpler and better way of doing this than having to go down all these different routes.

We know what happens. The system creates complexity for businesses having to track and make all these returns. Then the Revenue has to audit and scrutinise those returns and ensure that everything is done properly. It therefore takes work on both sides to support a system that I suspect is achieving the opposite of what we want, which is to encourage existing and new businesses to invest in new, modern and environmentally friendly equipment, and to create more jobs in the manufacturing sector that we so value in this country.

Louise Mensch (Corby) (Con): My hon. Friend is making a powerful speech, and I share his interest in this subject because, like him, I have large amounts of manufacturing industries in my constituency. Have any businesses in his constituency made representations to him about how much such a measure could save them or help them to invest?

4 July 2011 : Column 1305

Nigel Mills: I can think of many things on which businesses lobby their MP, but the details of the tax system are a little way down that list. We would find that businesses take a different view of whether they benefit from the current regime. However, as we continually reduce the rate, this will become of greater interest to more and more businesses. Yes, businesses come to me and say, “The general tax system is just far too complex. The corporation tax system as a whole is far too complex.” The issue I have raised is just one particularly good example of where the system is now out of date.

If the Minister needs more encouragement to simplify the system, I would add that the more complex we make a system, the more attractive we make tax avoidance and the more loopholes we create for tax avoidance. Through the Finance Bill we have had to introduce anti-avoidance measures to try to stop people exploiting the system’s complexities. How much more attractive would it be if we simplified the regime either by retaining capital allowances that provide the attraction of a simple fixed rate of relief, or by allowing a business to relieve the depreciation charge it makes in its accounts? In previous debates, we have heard of the risk that businesses could massage their tax results to accelerate the deduction in advance of the economic life of those assets ending. These things can be tackled, however. In effect we are allowing a business with an intangible asset to take relief for its accounts depreciation. It is strange that we allow that for intangible assets that we cannot, by definition, touch and for which there is no scientific data proving the lifespan, yet for tangible assets—the core things we want businesses to invest in—people have to go down this hugely complex route.

In reducing the allowance rate from 20% to 18%, the Government think that they will more closely align rates with the economic life of assets these days. I am not sure that businesses in my constituency are saying that that is their experience. These days, things move on so fast that the life of an asset is quite hard to predict. If someone is looking for a return on an asset over six years-plus, it is hard to be confident in the current market. There are many issues with the capital allowance system, and I suspect that each year a different aspect will become the hot topic. The Minister will be lobbied by different interest groups, as I suspect he was this year in his attempt to move—quite rightly—from four years to eight years, but when he is next lobbied and gets proposals in his Red Box to add another layer of complexity to the system, I hope he will say, “Actually, there must be a better way we can do this.” This is fundamental to our corporate tax system, it is fundamental to how we encourage investment in our country, and there must be a better, simpler, fairer way that removes some of the potential for abuse. New clause 12 would get the Office of Tax Simplification to consider whether a better system could be introduced. I would strongly encourage the Government to consider carefully going down that line.

Let us step back in history to the time of President Reagan. One example of how not to simplify a tax system was his Tax Reform Act of 1986, which introduced what was called the “double-declining balance method”, switching to the straight line method at a time to maximise the depreciation allowance. I raise that issue only to show that this is not as simple as saying that we need either the current system or accounts depreciation—different things could be done that might encourage

4 July 2011 : Column 1306

investment, although I am not sure that the double-declining balance would meet my aim of simplifying, even if it might give businesses the joy of accelerated relief. I shall not ask the Minister to respond in detail on that particular method, however, as I suspect that it will not have featured in his recent studies.

New clause 14 addresses a slightly less hot topic—groups of companies. These can range from groups with two companies through to multinationals with dozens or even hundreds of UK companies. For corporation tax purposes, we currently ask groups to file a tax return for each entity. Then we ask them to file separate claims and elections for all the various inter-group transfers and allocations. They are allowed to transfer a loss from one company against the profit of another, and they are allowed various elections on the transference of assets around the group. All these things create a huge compliance headache for taxpayers and the Revenue.

It is worth considering whether there is a simpler way of getting groups to deal with their corporation tax compliance by filing a tax return covering the whole group. There are precedents: many other tax regimes under our competitors allow groups to file a single tax return for their whole group, and in fact we allow groups to make group VAT elections and effectively file single VAT calculations. I wonder how much easier it would be for a group if it had the same basis for VAT as for corporation tax. Let us consider all the potential savings for businesses and the Revenue in not having to go through dozens of individual tax returns. We should bear in mind the fact that many entities in a group will have few entries and will add very little. Under my proposal, we would no longer require all these group relief returns when businesses allocate losses from one company to another, then make a change following submission and have to change all those returns, after which one company makes a loss the next year that changes the previous year’s return, meaning that they have to re-file them all. All these things add huge complexity and costs but very little value to the tax system.

I accept that they add some value to the Treasury, however, through the hope that, somewhere in a group, some losses or something else will not get relieved but will get trapped, whereas under a simplified system they would get used. I am not sure that our predecessors, when they passed these reliefs to support and encourage business, were aiming to put in place systems so complex and out of date that some relief would get denied when it ought to be given.

There are further reasons behind my proposals. We impose on UK group companies various requirements to review the pricing of transactions that take place between them. There is no tax at stake if company A sells something to company B for £100, then has to work out whether the price ought to have been £95 or £105. The only result is that one entity ends up with a slightly reduced profit, and the other with a slightly higher one. Both pay the same rate of tax, so the present arrangements simply result in a paper chase that creates compliance headaches for business and the Revenue alike. All such transactional requirements between group companies would disappear if they were allowed to file one tax return.

8 pm

If I were working in the Revenue, I would be keen to get a consolidation from large groups of what their affairs in the UK actually looked like. In that way, I

4 July 2011 : Column 1307

would be able to see what return they were making and whether it looked a little low or whether there were any strange entries that seemed to be reducing profits. At the moment, a group filing 65 tax returns could have all manner of strange things going on, and it could be hard to see both sides of the matter. Something could be shown in one entity, and it would be necessary to hunt for the opposite entry somewhere else.

Those arrangements create scope for tax avoidance. The Minister will be aware of the reforms that he has to introduce to tackle these complex, one-sided instances in which a tax deduction appears for a payment in one group company and the income elsewhere in the group is somehow characterised as something different that is not taxable. If we got this reform right, we could make this kind of tax abuse a lot harder to carry out. That would also remove the need to introduce more and more complexity into the tax system, year on year, to tackle all these abuses. Simplifying the tax system will reduce costs, encourage the investment that we want and tackle tax avoidance by taking away the present complexities and loopholes. I suspect that simpler taxes are more likely to be complied with.

If I have not convinced the Minister so far, let me return to the question of capital allowances. At the moment, we give pretty much no relief when a business invests in a new factory. We no longer give any relief for the building, but if we want people to invest in large-scale manufacturing plants, that is not a wise position to take. I understand why we give no relief for land or for office blocks, but the situation for factories is a strange one. It forces a business to separate out anything that it has put into the factory that could be regarded as plant and equipment. For example, it could separate out air conditioning or mezzanine floors, or anything else remotely specialist, in order to claim tax relief on it. This creates a huge amount of work for businesses and tax advisers.

In fact, a consultation is taking place at the moment on reforming the rules for businesses that are trying to track assets such as those. We get annoyed with businesses for entering into expensive and complex leases in order to get a tax deduction for their property costs when their income perhaps appears offshore and is not taxed in the UK. Might there not be a better way? My proposal would remove some of the incentive to do that, and allow businesses to get proper relief on their capital investment instead of forcing them down ever more complex, artificial and expensive routes whereby those with well-paid tax advisers can get themselves into the best tax situation. My proposal would help the innocent companies that just want to get on with running their business but instead get mired down in the complexities. I commend both my new clauses to the Government.

John McDonnell (Hayes and Harlington) (Lab): I congratulate the hon. Member for Amber Valley (Nigel Mills) on moving his new clause and on the deployment of his expertise for the benefit of the whole House. He could well be a candidate for tax personality of next year, but I would advise him that it might help his prospects if he were to lay off the Reagan quotes.

I wish to speak to the amendments tabled in my name. Amendment 15 deals with directors’ salaries and payments, and proposes a binding vote by shareholders on such payments. Amendment 16 deals with the

4 July 2011 : Column 1308

publication of information on the salaries and bonuses of directors in all public limited companies. Amendment 17 deals with a number of issues relating to enterprise investment schemes, and it would be helpful to receive certain information from the Government in order to assess those schemes in future.

I want to deal with salaries and bonuses first, as they have been a matter of contention in the House for a number of years now. Statements have been made by leading members of all political parties expressing concern, if not outrage, at the levels of increase in the pay of company directors. The Leader of the Opposition said in a recent speech that the

“danger today is that pay and performance have become detached…Over the last 12 years, chief executive pay in Britain’s top companies has quadrupled, while share prices have remained flat.”

The Secretary of State for Business, Innovation and Skills has called for greater disclosure on pay and bonuses and their link to company performance. He was reported as hitting out at the

“ethics of the wild east”

in the City. He described some directors’ pay and bonus settlements as “ridiculous”, “outrageous” and “rewards for failures”. I agree wholeheartedly with the Leader of the Opposition and the Secretary of State on this matter. I believe that the Secretary of State’s sentiments have been echoed by the Prime Minister himself.

My amendments seek to address the fact that the present system for the control of directors’ pay and bonuses by shareholders is not working. The current system for judging and rewarding remuneration in major companies is clearly not linked to performance, and evidence for that now abounds. The Business Secretary was referring to the dramatic increase in the remuneration of directors and executives of the top 100 companies. In 1998, that remuneration was 45 times the pay of the average employee in the company. By 2010, it was 145 times the average pay, and if it continues at that rate, it is predicted to reach 214 times the average salary in the company that the director or chief executive controls.

At the moment, the chief executives of the FTSE 100 companies have total remuneration packages averaging £4.2 million a year. Last August, it was reported that the financial crisis had resulted in ordinary employees’ salaries being frozen in at least one third of Britain’s biggest companies, yet the average pay of the top directors increased by £500,000. Hewitt New Bridge Street has reported that the typical bonus has now increased from 90% to 120% of salary, and the total remuneration survey conducted by pay and reward consultants MM&K showed evidence of a total disconnect between rewards, actual performance and shareholder value. Performance-related pay has just gone through the roof, however, with extremely complex packages being devised. The average top award under share allocation schemes and incentive schemes in the FTSE 100 has risen from 174% to 328% of salary.

In some instances, outrageously large awards have been agreed even before the director has demonstrated any value to the company. An example is Lloyds, which gave its new chief exec, António Horta-Osório, a welcome package worth close to £13.4 million simply for joining the bank. This is a bank that we, as taxpayers, now own. Lord Oakeshott, the Liberal Democrat peer, said that taxpayers would be “appalled” at paying someone

4 July 2011 : Column 1309

“£5,000 a day, just for turning up at the office for the next three years”.

I wholeheartedly agree with him on that. Ironically, Sir Victor Blank, the former chair of the Lloyds group, described top bankers’ pay in The Sunday Telegraph—not a newspaper I regularly read—as “unconscionable” and warned that the widening pay gap could lead to dangerous divisions in society and more strikes. I shall quote him directly. He said:

“You can’t have an ongoing widening gap between the top pay and the average pay…I think we are at a time now where you have a certain amount of unrest over pensions and other issues where if we don’t start early to have a degree of moderation in the levels of pay we risk more industrial unrest than we have had.”

I could not agree more.

Some shareholders have echoed those concerns. It was perhaps best expressed by a woman shareholder who was disgruntled at the Cable and Wireless annual general meeting. She complained—and it was a heartfelt plea from the floor:

“All the money and all the profit seem to be going towards the salaries of the Board, and I did not necessarily think that they were worth that amount of money.”

I believe this is undermining confidence and engendering cynicism—and, of course, division and disenchantment—in the whole process.

Clearly, the billowing packages of directors’ pay, bonuses and overall remuneration has to be addressed. The Government have acknowledged that, as have all parties in the House. My amendments are designed to prompt action and to make action more speedy and decisive.

If we are to tackle this issue, we need to understand why it is occurring. The Joseph Rowntree charitable trust funded an independent inquiry, the High Pay Commission, to which I believe a number of Members have submitted their views over the last year. It has looked at the drivers behind the trend of increases in directors’ and executives’ pay and remuneration. It provides some understanding of how the system operates to determine directors’ remuneration and puts forward the reason for the excesses.

Governments have addressed the issue over the last two decades. Legislation has been there to establish the current system of corporate governance. For publicly listed companies, it is based first on the establishment of a remuneration committee on every board to advise on appropriate remuneration; secondly, on disclosure; and, thirdly, on the shareholder having a vote on the pay and remuneration of directors. All the companies with a premium listing of shares are required on the Financial Services Authority listing rules to report on how they have applied the UK corporate governance code in their annual reports and accounts. This includes explaining how the pay was arrived at and determined.

The remuneration committees that have developed since the 1990s grew up as a result of pressure from successive Governments. They aim to overcome the conflict of interest in directors setting their own salaries. The Greenbury report on corporate governance called for them to be fully independent and to comprise wholly non-executive directors. The committees agree the pay packages for top execs and produce the report that will eventually go before shareholders.

4 July 2011 : Column 1310

The problem identified by the High Pay Commission and others is that the non-execs that sit on the remuneration committees are often executive directors in other companies, so setting benchmarks of remuneration is important for them. There have been charges of cronyism as executives and directors appoint each other to each other’s remuneration committees—a relationship of incestuous self-interest—while the non-execs sit alongside executive directors supporting them and unwilling to challenge them on pay. In recent years, we have seen the emergence of remuneration consultants who advise the remuneration committees on the setting of pay, but these are unregulated and they are often working for or are commissioned by the company directors on whose salaries they are giving advice.

On disclosure, quoted companies must publish directors’ remuneration reports. These appear in the annual report and are put to shareholders for a vote. This information is required to be put to companies as an ordinary resolution for approval at the AGM. The problem, however, is the UK corporate governance code guidance, according to which:

“A significant proportion of executive directors’ remuneration should be structured so as to link the rewards to corporate and individual performance. There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing remuneration packages of individual directors.”

8.15 pm

The Hampel report back in 1988 argued that the remuneration reports were excessively detailed and that features of the packages were

“rendered obscure to all but the expert reader.”

The situation has got worse in recent years—worse than ever before. The data produced for the reports to the shareholders are often impenetrable and the remuneration packages are extremely complicated and sophisticated. There is a real fear of shareholders gaining any understanding of the package of remuneration, including the levels, and it has been argued that the reports are less about enlightening the shareholders than camouflaging pay and bonus levels within the complex schemes proposed. Publication does not cover all companies, so it is extremely difficult for shareholders to hold the directors and executives to account, simply because the information published is too complex and impenetrable.

As for the shareholder vote, international and national regulations and guidance on corporate governance place great emphasis on shareholders having the ability to express their opinions on the remuneration of directors. It is enshrined in OECD principles of corporate governance. In the European Union, the publication of remuneration levels and performance criteria is recommended, as is investors having a vote on remuneration.

Within the UK, the UK corporate governance code sets out the standard of good practice on reporting to shareholders on remuneration and regulations also require shareholder votes on the total remuneration packages of company executives and directors. The vote itself, however, is purely advisory and the failure to pass the remuneration report does not invalidate the payments made. In fact, the FSA reforms of the banking sector have gone further on the basis of EU principles and those of the Basel Committee on Banking Supervision. Further help is provided on disclosure, but there is still no authoritative binding vote that will determine the acceptability of pay packages.

4 July 2011 : Column 1311

When shareholder advisory votes were initially introduced, they had some effect. The best example is GlaxoSmithKline, as the remuneration report was defeated—but that is very rare. The average vote against the remuneration report nowadays is 5.6% on the all share index. Shareholders are limited by the amount of information available, particularly in view of diversifying portfolios that have a range of investments, making it hard to find time to study and intervene in each case.

My amendments are designed to address some of these issues, particularly the weaknesses within the current governance structure. I am trying to make the existing structure work more effectively so that shareholders can begin to control the excesses of directors’ pay and remuneration that have developed in recent years.

Amendment 20 says simply that prior to the corporation tax changes taking effect, the Government should enact legislation to ensure that all public companies

“publish the…salaries and bonuses of their directors.”

We have the opportunity this evening to hear the Government’s future plans on publication in order to tackle the complexity of the current arrangements.

Amendment 15 goes further in an attempt to strengthen the hands of shareholders by making the advisory vote on remuneration packages binding. In this way, it will enable shareholders to take control of their own companies once again and ensure accountability. It will enable shareholders to hold not only directors but remuneration committees to account.

Mr Barry Sheerman (Huddersfield) (Lab/Co-op): Will my hon. Friend’s amendments help with the sort of situation we faced with HBOS? It was driven into the buffers by its highly paid executive team, who seemed to lose nothing while the shareholders lost everything.

John McDonnell: My amendments would go some way to ensuring that the information is published, enabling the Government to look in more detail at such information, while also enabling shareholders to have at least some opportunity to hold the directors to account. As I said, the advisory vote system worked initially, but it certainly has not worked in recent years, as the HBOS example demonstrates. Having a binding vote will give the shareholders some authority. The amendments are an attempt to redress the current imbalance of power between the shareholder and the board. It will not solve all the problems of directors being unaccountable on pay or bonus awards, but it would put another weapon in shareholders’ hands to tackle the issue.

Amendment 17 relates to enterprise investment schemes and accountability. Just as shareholders need information to hold company boards to account, the House should ensure that taxpayer’s money and tax concessions are allocated wisely to groups in society and that value for money is achieved. The amendment would invite the Government to justify in more detail future enterprise investment schemes on the basis of past performance of previously approved schemes. The amendment would seek information from the Minister on the total cost of tax relief with regard to the tax income forgone, the number of jobs created by the companies that have gained tax relief under the schemes, and the number of companies that have failed after the tax relief has been given—calculating the cost of each job created compared with the cost of the tax relief given. The information

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provided in the paperwork in relation to the Budget and the Finance Bill is not clear. The Treasury briefing on enterprise investment schemes and venture capital trusts sets out the proposals but provides no analysis of past measures and their performance. The Treasury Committee, in its comments on tax relief for EIS under the Finance Bill , suggested:

“The measure also needs to be viewed alongside the other proposals for EIS and whether the existing EIS conditions encourage investment in growth businesses.”

The Treasury Committee, therefore, points us in the direction of undertaking a proper value for money exercise on the proposals.

The amendment would enable the Minister to respond to that. Before we venture into such schemes, particularly EIS, we must ensure that their objectives are achieved with value for money, and the information is not currently available for us to make that judgment.

Malcolm Bruce (Gordon) (LD): I shall speak briefly to amendment 51. Since the Government announced the additional corporation tax on oil companies in the Budget, I have been urging and, I hope, taking a constructive part in getting the companies and the Government to talk through how field allowances can be used to ensure that projects reviewed as a result of the tax changes can still go ahead. The purpose of the amendment is to get feedback from the Government on the progress of such negotiations, which I hope will have a positive outcome. Immediately after the Budget, Statoil made the most controversial, and certainly the most high-profile, announcement: that it was putting on hold the Mariner and Bressay fields. I imagine that those fields involve up to £6 billion of investment, with 600,000 barrels of oil recoverable and the possibility of a headquarters building being located in Aberdeen. I hope that the Government will find a way to ensure that the project goes ahead.

Next week, my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) and I are taking a number of oil companies that are members of Oil & Gas UK to meet the Secretary of State for Energy and Climate Change to discuss in detail the implications of the tax. The difficulty is that the tax changes impact differently on every field and on every company and its planned investments. I hope that active negotiations will lead to a recognition that allowances can be adjusted for particular types of field or circumstances, and that as a net result we will not lose too many of the investments that were originally at risk. I also hope that engagement over time will lead to both parties agreeing that a simplification of the tax system might be desirable. When prices are high, the industry might reasonably be expected to make a contribution; equally, we should recognise its need to know with some certainly the return that it is likely to get on significant investments.

The hon. Member for Hayes and Harlington (John McDonnell) made a powerful and persuasive case regarding rewards for work not done or risk not taken, but it is easy to look at the oil companies as rich fat cats, which is how the public and the House often view them. However, developing oil from under the North sea involves huge risks in relation to technology, geology, exchange rates, markets and weather. Many people engaged in the industry use their technical knowledge and expertise to make a substantial return for their companies and for the UK economy, and although they

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have good, well-paid jobs, the payments and returns they receive are not in the same league as those received by people in financial services.

The Government have acknowledged that they do not want to lose the production from marginal and mature fields, and they are prepared to use field allowances. According to conversations I have had, negotiating in detail over a project for a field is incredibly complicated, requiring an enormous amount of civil service time, expertise and engagement, as well as executive management time, so I hope that the system will be simplified. Perhaps everybody is prepared to devote such time to significant projects, but the Department has a limited capacity to engage in too many of those negotiations, and companies sometimes have a limited capacity and willingness to engage, to the extent they might say that investigating or investing in other projects is more worth while.

I want to be encouraged by the knowledge that constructive engagement is taking place. I get good feedback from the industry about talks that it hopes and believes will lead to agreements that ensure that investments go ahead. In the long run, I hope that we will have a system in which there is trust and understanding and the Government get the revenue from high oil prices to which they are entitled, but the country gets the investment in the expertise, people and resources that will maximise production of oil and gas in the North sea, maximise jobs in the UK, and maximise and sustain the export industry, which is growing substantially. I hope that the Government will give a positive response in due course.

Mr Frank Doran (Aberdeen North) (Lab): I support amendment 51, tabled by the right hon. Member for Gordon (Malcolm Bruce). As neighbours, we share the same interest in the oil and gas industry and know full well its importance not just to the north-east of Scotland but to the whole United Kingdom. One of our disappointments about the imposition of the tax is that the Government seemed not fully to understand the industry and its importance, which I hope they understand now.

Like the right hon. Gentleman, I am pleased to hear from my contact with the industry that discussions are under way, with the possibility of improvements to field allowances. If the Government had thought the tax through properly, they would have already prepared the ground for field allowances to mitigate the damage done to the industry. It is not possible to overstate that damage. A huge blow was dealt to confidence, not just because the industry had been involved in regular discussions with the previous Labour Government and the current Government about a review of the tax system to deal with a host of areas that had been remained untouched over the years, but because of how that was done. It seems from all the available information that the politicians had no contact or discussions even with tax experts in the Treasury. This was a purely political decision that did not arise from the review, from consultation, or from any wider consideration than the need to raise money.

8.30 pm

It is clear that the industry will prosper for the next couple of years, certainly in the North sea, because the investment for the two years has already been committed. We are concerned about what will happen from 2013

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onwards, when owners and shareholders and those at the companies’ headquarters will be looking for investment. As I am sure the Minister knows, investment decisions are made not locally but in places such as Dallas, Houston, San Diego, Paris and Madrid, and the people who run our industry have to pitch for that investment.

There is huge uncertainty because of the damage caused by the initial tax imposition and the tax system proposed in the Bill, but discussions about what is to happen in 2013-14 are taking place now. The sooner the Government can give us an indication of what they intend to offer in field allowances the better it will be, not just for the individual companies involved but for the country, because investment from abroad is desperately needed.

Steve Baker (Wycombe) (Con): As I listened to the hon. Member for Hayes and Harlington (John McDonnell) speak to amendment 15, I thought that my ears were deceiving me because I felt so much sympathy for what he was saying. Indeed, he put me in mind of a book by a reformed Trotskyite, James Burnham, who predicted in “The Managerial Revolution” the system of capitalism—the set of structures—that we now recognise in publicly listed companies. My discomfort evaporated, however, when I realised that the hon. Gentleman was defending the interests of the owners of capital.

John McDonnell: Some of us are not completely reformed.

Steve Baker: In that case, I am delighted that we are on opposite sides of the Chamber.

It is strange that capitalism has come to this: that, nowadays, the owners of capital need to be defended by the House from their own directors. If I have understood the amendment correctly, it would mean that the change in the main rate for 2011 would not come into force until legislation had provided arrangements for shareholders to approve their directors’ remuneration. It is almost incredible that such an arrangement does not already exist.

We must reunite ownership control and the risk taken with capital, and I believe that the amendment goes to the heart of one of the problems of our capitalist system. I am not sure that it would achieve the aim that the hon. Gentleman has set out because it might not affect the rate for 2011, and I therefore cannot support it. Nevertheless, I think it is an extremely good idea, and I urge the Government to consider it.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): I support amendment 51, tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce). I remind the House of my entry in the Register of Members’ Financial Interests as a shareholder in Shell and a vice-chair of the British offshore oil and gas industry all-party parliamentary group.

The key aim of the amendment is to introduce damage limitation and to rebuild the confidence and trust among investors that the country needs if we are to maximise the benefits of our own oil and gas. The oil and gas under the ground does not provide us with any jobs, tax or security of supply. Those are produced only when it comes out of the ground, and, although it belongs to the nation, we can get it out of the ground only through the expertise and skill of people from my constituency

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and throughout the country. They apply their knowledge by way of the investment provided by risk capital, and the investors must know, as far as possible, in what climate they are operating and what returns they will obtain. The kind of risk that we rely on their taking is illustrated by a field in the North sea where the geology suggested that three platforms would be enough to sustain production and provide all the necessary equipment. Only when they started extracting the oil did they discover that there was much more sulphur in some parts of the field than in others and that they needed to build a fourth platform at a cost of £1 billion. Such extra risk taken by investors—not by the Government or the taxpayer—must be recognised as being of great importance to our country’s success in this regard.

Last week, we held a reception in Parliament for Subsea UK to highlight an industry that has developed into a jewel in the crown of this country, yielding £6 billion in production from under the sea through engineering skill, half of which is exported from this country. The United Kingdom is responsible for one third of the world’s subsea engineering; we therefore have something very important to nurture and build on.

The field allowance discussions are an important means of trying to unlock some of the fields that will be negatively affected by what has been proposed. The hon. Member for Aberdeen North (Mr Doran) and my right hon. Friend the Member for Gordon emphasised a longer term risk that needs to be addressed: the risk not to the projects that are unwinding now and in the next two years, which already had the momentum of contracts signed and delivered before the tax was changed, but to those that will be decided in the culture and investment climate prevailing in the aftermath of the tax. That is why these talks are so important in rebuilding trust and a constructive engagement.

I welcome the fact that industry and Government appear to be addressing the need for constructive engagement, and any updates from Ministers as to how we are progressing in rebuilding trust will be very important. We must remember that the reputations of the country managers—the people in this country who work for the multinational companies and the investors abroad—has been damaged by what happened. They have been encouraging their investors to invest in this country in one set of circumstances, only for the goalposts to be shifted. They need trust and confidence in them to be restored if they are going to persuade their investors abroad—in Calgary and elsewhere—to invest again in our country so we can build on the potential that exists.

Stewart Hosie (Dundee East) (SNP): I agree with everything that has been said by the hon. Gentleman, his party colleague, the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for Aberdeen North (Mr Doran). We have heard about contracts and work that is in place already unwinding, with the likelihood of a gap after 2013 when one set of investment decisions has already been made but others have not yet been taken. I ask the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) to carry on the good work he is doing with his own Government on speeding up this review, so we can avoid that investment gap and the real dangers we will face in a couple of years’ time.

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Sir Robert Smith: The purpose of the amendment is to keep the spotlight on this issue by ensuring we get updates from the Government, and that the Government can give a signal on the investment climate showing that they understand the concerns and are willing to take them on board so we can build a long-term future.

There is another gap apart from the time gap as these contracts unravel. We are a mature province so we must ensure that the infrastructure to get the next investments off the ground is still in place in years to come. That infrastructure must not be decommissioned prematurely, and so the investment must not be withdrawn. The owners of the infrastructure need to know that there is a long-term future for investment as more production will be brought in through those platforms. That is another reason why these constructive talks are so important.

I encourage the Government to do all they can to restore confidence and the positive investor climate that will unlock the full potential that exists in this country, build on the skills we already have, and maximise the benefit to the taxpayer in the long run and to our security of supply.

Mr David Hanson (Delyn) (Lab): I am grateful to the hon. Member for Amber Valley (Nigel Mills) for kicking off this wide-ranging discussion on a number of important tax issues. He certainly enlightened me when he revealed that the Minister is tax personality of the year. I missed that; despite all my “Gauke” Google alerts, I missed the fact that he was tax personality of the year. May I offer the official Opposition’s wholehearted congratulations to him on that?

The hon. Member for Amber Valley gave a number of Ronald Reagan quotes and he said today was the 100th anniversary of Ronald Reagan’s birth. That was on 6 February, in fact, but this is the 100th year since Ronald Reagan’s birth. As you will know, Mr Deputy Speaker, today is the day on which we shrank the UK tax base by giving away America 200-odd years ago, and I hope that, as part of his plans for simplification, the hon. Gentleman will recall that.

New clauses 12 and 14 were proposed by the hon. Gentleman and he may be surprised to learn that I am not averse to his suggestion in new clause 14, because there are grounds for discussing the simplification of UK corporation tax returns for multinationals. It is worth while considering the review that he suggests, provided that it examines whether such a simplification will decrease, rather than increase, tax evasion—an increase is always the worry with such a simplification. New clause 14 potentially has merit and although I do not expect the hon. Gentleman to push it to a vote, I hope that the Minister will consider the issue.

New clause 12 proposes to review, or possibly even remove, capital allowances and asks the Office of Tax Simplification to report on replacing them with a different form of relief. The hon. Member for Amber Valley will know that Labour Members had substantial concerns about reducing capital allowances for firms, which explains why I cannot support the new clause. My hon. Friends and I tabled a number of amendments in Committee to oppose the reduction in the capital allowances. I realise that the reduction was tied up strongly with the decision to cut corporation tax to 24% by 2014-15—shortly thereafter it was decided to cut it to 23%— which was one of the flagship growth measures in the June Budget.

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However, that was paid for by slashing investment and capital allowances, which encourage businesses to take a long-term view by providing tax relief on the purchase of equipment and machinery. The view that I expressed in Committee has not changed, although I know that it will cause disagreement: companies that invest, particularly in manufacturing—car industries in my own area of north Wales, advanced manufacturing, wind turbine manufacturing, plane makers and so on—will benefit from capital allowances, whereas the tax cuts are, unfortunately, aimed at financial services.

At the time of the June 2010 Budget, manufacturers expressed concern at what this approach will mean for industry. More recently, the engineering manufacturers association warned that the Government risk moving to a tax system that contains “a bias” against big manufacturers. Members on both sides of the House are trying to encourage manufacturing growth, and I believe that the review that the hon. Gentleman seeks in the new clause could be damaging to the growth of capital investment and, therefore, to the growth of manufacturing industry.

Nigel Mills: I wish to clarify something. My aim in new clause 12 was not to do what the right hon. Gentleman fears will happen, but to do the opposite. I was aiming to ask the OTS to consider simplifying or replacing the capital allowances regime with one that would match the tax relief more closely to the life of the assets being invested in. My concern was that an 18% reducing balance was giving tax relief over a far longer period than the actual useful life of those assets. I felt that having a simpler system, where a shorter “life” meant that the tax relief would be obtained much faster, would incentivise investment, not discourage it.

Mr Hanson: That is an interesting argument, and I bow to the hon. Gentleman’s detailed knowledge of these matters, which goes back to his professional experience before entering the House. My worry has been placed on the record on Second Reading, in Committee and on several other occasions. For the moment, it is best that we keep our arguments to the effectiveness of capital allowances, and I will, thus, still be unable to support the new clause.

My hon. Friend the Member for Hayes and Harlington (John McDonnell) tabled amendments 15, 20 and 17. I suspect that he was even more surprised than me to hear the hon. Member for Wycombe (Steve Baker) offer his unflinching support for my hon. Friend’s suggestions on this matter. I thank him for tabling his amendments because they make an extremely important contribution to the debate. We face a real issue in how we collectively address what is now a cross-party concern and shed light on the remuneration of executives, who are ultimately paid by the companies for which they work and by us as consumers of those goods in our society at large.

John McDonnell: I had better correct the record. As someone who still sees the relevance of Trotsky’s transitional programme, I am attempting not to salvage capitalism but to expose its weaknesses.

8.45 pm

Mr Hanson: Far be it from me to engage with my hon. Friend on the benefits or otherwise of Trotsky’s theory, because I am sure that he would win that discussion hands down.

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The key point is that we all seek transparency in remuneration. My hon. Friend the Member for Hayes and Harlington will be aware that there is already legislation on the statute book that means that banks must have transparency in their remuneration. The Government should enact that legislation and should also push for a wider European agreement on transparency, an act of faith that they have so far failed to push for.

The previous Government, in our Financial Services Act 2010, allowed the Treasury to issue regulations that forced banks to disclose in bands the number of staff earning more than £1 million a year. That legislation has so far not been pursued with any vigour by the Government. The Act, which gained Royal Assent in April 2010—just before the general election—gave the Treasury the power to regulate on this issue. It is an issue that my hon. Friend the Member for Hayes and Harlington has raised and for which the Government must account today. The Opposition will continue to consider it in the future. Indeed, my right hon. Friend the Leader of the Opposition made a clear speech to the Coin street neighbourhood centre on Monday 13 June in which he committed the Opposition to ensuring that we had such transparency and that chief executives were accountable not just to their shareholders but to the wider community.

Kate Green (Stretford and Urmston) (Lab): Does my right hon. Friend agree that an important feature of exposing those very high bonuses to public scrutiny was to make it clear that other lower paid workers in the banking sector receive some bonus payments? It is very important that we distinguish between the excessive bonuses at the top and the bonuses that top up relatively modest wages for the bank clerks, who are feeling quite attacked personally when the banking crisis was none of their making.

Mr Hanson: My hon. Friend makes a valuable point. She will know that the legislation passed by my right hon. Friend the Member for Edinburgh South West (Mr Darling) in the last Parliament allowed salaries of more than £1 million to be open to scrutiny, which would address the issue she mentions.

There is some merit in bringing this issue to the attention of the House, and I am grateful to my hon. Friend the Member for Hayes and Harlington for doing so. He will know that there are some issues to do with his amendment delaying corporation tax cuts, but I am grateful that he has addressed the issue and I hope the Minister will respond in due course.

Amendment 17 is about the enterprise investment scheme, which we support. In Committee, we asked the Minister whether he had state aid approval for the EIS and I would welcome an update on whether he has since made progress on that.

I have some sympathy with amendment 51, tabled by the right hon. Member for Gordon (Malcolm Bruce). On Second Reading and in the Committee of the whole House, we tabled amendments that mirrored his amendment in many ways, asking the Chancellor to produce before the end of September an assessment of the impact of taxation on ring-fenced profits, business investment and growth, including an assessment of the long-term sustainability of oil and gas exploration in the North sea. For the reasons mentioned by my hon. Friend the

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Member for Aberdeen North (Mr Doran), the way that the proposal was brought forward contained elements of surprise for the industry. There was a lack of consultation and there have been consequences. The right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) both mentioned Statoil and the great impact that the decision has had on that company’s potential $10 billion—or £6.1 billion—investment in the North sea.

It is important that the Economic Secretary has had discussions—some potentially very exciting and energetic—with oil companies on these matters as part of her initiation into her role in government. I hope that she will ensure that she reports back. I also hope that the Minister will accept amendment 51, or at least accept an amendment in principle for the future.

Finally, although my hon. Friend the Member for West Bromwich East (Mr Watson) is not present today because of other matters, I very much welcome his amendment 9, which is part of this group. We raised the issue of video games tax relief in debates on the Finance (No. 2) Bill. However, we need to look at the issue again in detail, if only because the hon. Member for Wantage (Mr Vaizey) said when in opposition:

“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”

He said that during the general election, on 13 April 2010. He is now the Under-Secretary of State for Culture, Olympics, Media and Sport, yet he has been sat on by the Chancellor of the Exchequer, who said in his Budget statement last June:

“In the current climate, with the deficit the size…all those reductions in tax must be more than paid for by other changes to business taxation, so we will not go ahead with the poorly targeted tax relief for the video games industry.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

My hon. Friend’s amendment 9 asks the Government to look again at the issue. I simply put on record the fact that, yet again, those in government said one thing during the election and something else afterwards. We need to encourage the video games industry so that we can compete on a global scale.

In summary, there are some useful amendments in this group. I cannot accept everything that the hon. Member for Amber Valley said, but the other amendments before us have some merit. I look forward to hearing what the Minister has to say.

The Exchequer Secretary to the Treasury (Mr David Gauke): We have had an interesting and wide-ranging debate on this group of amendments, which propose a number of changes to the taxation of business. Let me start by reiterating our position on business tax. The first step in the Government’s plan for growth is a competitive UK tax system. In fact, the Government’s aim is to create the most competitive corporate tax regime in the G20, and we have been clear about how we intend to achieve that. Last November we published our corporate tax road map, setting out our plans for reform over the next five years and the principles underpinning those reforms. I am quite clear that if we are to provide business with the certainty that it needs

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to invest in the UK, tax reforms need to maintain stability, avoid complexity and ensure a level playing field for taxpayers.

Let me deal first with the amendments tabled by the hon. Member for Hayes and Harlington (John McDonnell), and in particular amendment 15, which deals with directors’ pay, and on which we saw an unlikely alliance between him and my hon. Friend the Member for Wycombe (Steve Baker) in defence of the interests of capital versus workers—if I can phrase it in a way that will please my hon. Friend but not the hon. Gentleman—albeit the highest paid workers. It is worth noting that both hon. Members have made many declarations of independence, and today was no exception. As I have said, a competitive tax regime is the foundation of our plan for growth, and the consequence of amendment 15 would be to delay the reduction in corporation tax.

The Government take the essence of the hon. Gentleman’s concern—directors’ remuneration—seriously; indeed, my right hon. Friend the Secretary of State for Business, Innovation and Skills raised it on 22 June in a speech to the Association of British Insurers, asking how we can ensure that directors’ remuneration is effectively linked to company performance. To help answer that question, the Government already have plans to consult in two relevant areas. In July, the Department for Business, Innovation and Skills will look at the narrative aspects of reporting directors’ remuneration, examining the provisions dealing with the disclosure of directors’ remuneration and making the link to company performance much clearer. In the autumn, the Department will explore other policy options related to the role of remuneration committees and company accountability to shareholders.

Turning directly to the proposals made by the hon. Member for Hayes and Harlington, let me first remind him that UK-quoted companies are already required to publish a directors’ remuneration report. That includes full individual details of each director’s pay, including salary and bonuses, share schemes and all other forms of remuneration. His proposal to make the remuneration vote binding in nature would raise difficulties, as such a vote would inevitably cut across contractual arrangements already entered into between the company and the director. That is why the vote is currently advisory in nature.

John McDonnell: Is this issue to be part of the consultation in the autumn? Will it be addressed at all?

Mr Gauke: As I have said, the consultations I have announced will focus on the narrative provisions, the role of remuneration committees and company accountability to shareholders. I am sure that representations could be made to the latter consultation. However, there remains a difficulty with cutting across contractual arrangements and I dare say that there might be issues with the Human Rights Act 1998 were that to happen.

John McDonnell: First, I think it would be greatly reassuring to the House overall if the issue of the binding vote was within the scope of those consultations. Secondly, the issue of contractual commitments has always been the red herring brought up on any future reform. The way around it is simply to make future contracts subject to that binding vote of shareholders.

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Mr Gauke: I know that my ministerial colleagues in the Department for Business, Innovation and Skills are watching this debate very closely and will have listened to the hon. Gentleman’s representations. I noticed that when he referred to the House as a whole, he gestured to my hon. Friend the Member for Wycombe. Whether the hon. Gentleman and my hon. Friend necessarily represent the views of the House as a whole on all issues I am not sure, but the hon. Gentleman raises a fair point.

Steve Baker: May I say that I think the reason for this unlikely alliance is that the workers now are the capitalists through their pension funds and other investments? I remember a trade unionist explaining to me with some care the new movement for workers’ capital and I think we will be missing a trick as a free-market Government, if indeed we are a free-market Government, if we do not recognise that the workers now are the owners and that we need to help them take control of what they own.

Mr Gauke: I do not know whether my hon. Friend is trying to lose the support of the hon. Member for Hayes and Harlington on this, but I fully take his point on board and I shall ensure that BIS is aware of this debate. My right hon. Friend the Business Secretary has said that shareholder accountability is an area that his Department will be looking into in the autumn.

John McDonnell: This is a serious point, and I say to the Minister that this will come back time and again, because every Government structure put in place by successive Governments on this issue has been unsuccessful in controlling remuneration. There is outrage among the general public about what has been happening, not just in recent years but today with £6 billion bonuses in the City and elsewhere. I say to him in all seriousness that any Government need to address this issue, which concerns the democratic control of what are now public companies in terms of ownership.

Mr Gauke: The hon. Gentleman makes his point forcefully. It is worth pointing out that the UK leads the way internationally on the reporting of executive pay and accountability to shareholders. I hope that he will acknowledge that, just as I acknowledge the legitimate concerns he raises. It is our intention to make sure that the framework remains fit for purpose and in line with our approach to delivering long-term returns as our economy grows out of the recession.

The hon. Gentleman’s second amendment, amendment 17, would delay the introduction of clause 42 until a report on the impacts of the enterprise investment scheme had been published. In contrast with corporation tax as a whole, EIS is a focused relief with a particular purpose and is a vital component of the Government’s plan for growth. The scheme encourages investment into smaller, riskier companies by offering a tax incentive to investors. For example, it benefits new start-ups in high-tech sectors such as IT bioscience. Since 1994, about £7 billion from private investors has been contributed to qualifying companies. The Government are building on the success of the scheme with changes in this Finance Bill and in the Bill next year that will increase the incentive for people to invest in smaller companies, helping them to establish and grow.

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9 pm

The hon. Member for Hayes and Harlington wants a report on the impact of the scheme and the number of jobs created. Information on the cost of EIS and the number of investors claiming relief is available on the HMRC website. About 10,000 individuals invested through the scheme in 2008-09. HMRC does not collect data on the number of jobs created or the outcome for companies. Doing so would create an additional burden on the taxpayer and invested companies at a time when the Government are seeking to minimise the compliance and administrative burdens resulting from the tax system, particularly on small businesses.

John McDonnell: How do the Government assess value for money with regard to those schemes, if not in job creation?

Mr Gauke: There have been assessments of the enterprise investment scheme, which has been in place since 1994. We want to encourage greater investment, particularly in smaller companies. We recognise that sometimes there is market failure in that area, which is why tax incentives are justifiable. We have set out as much information as we can, but it is not something on which we can provide precise numbers. That is not the nature of the economy, but the scheme will encourage greater investment and that should be welcomed.

I thank my hon. Friend the Member for Amber Valley (Nigel Mills) for his remarks on my award as tax personality of the year. Some may think it a somewhat oxymoronic award, but I can tell the House that it has changed my life considerably.

My hon. Friend brings much greater expertise to these matters than I do. I welcome the fact that he seeks simplicity, which is not always the case with new clauses and amendments to Finance Bills. I want to make a couple of points that relate to both his new clauses.

First, we do not see it as our role to direct the Office of Tax Simplification. The office has done a lot of good work, but it is important that its independence is respected. Secondly, in its broad work the OTS has looked at the various allowances and reliefs in the tax system and has concluded that they are not areas where it wants to devote its efforts. None the less, I know that the OTS will closely read my hon. Friend’s speech. We are always keen to look at areas where we can improve the administration of the tax system, including his proposals in new clause 14 on consolidated filing.

On new clause 12, the OTS has given initial consideration to capital allowances as part of its review of tax reliefs and its ongoing review of small business taxation. The Government have set out their approach to capital allowances in the corporate tax road map. Allowing each business asset to be written off for tax purposes in line with its own depreciation rates would not necessarily bring the benefits to businesses that the new clause anticipates. Some business assets would depreciate more slowly than they currently do under the capital allowances regime, and it should be noted that the annual investment allowance gives immediate write-off for the plant and machinery expenditure of 95% of UK businesses. There is thus a danger that the new clause could increase business tax complexity.

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I know that my hon. Friend tabled his new clauses as probing provisions. I may not have entirely satisfied him, but he has put his case on record and the OTS will of course look carefully at what he says.

I turn finally to amendment 51, tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce), who has played a constructive role on the issue in the three months since the Budget announcement on oil and gas. He made an important contribution when the House debated clause 7 in the Committee of the whole House. He has stressed the importance of working closely with the industry in the months ahead, which the Government committed to do at the time of the Budget. We announced then that we would work with the industry in three key areas: setting the right trigger price for the fair fuel stabiliser; looking at whether we can find a way to provide long-term certainty on decommissioning relief; and looking at the case for new categories of field qualifying for the field allowance. I am pleased to tell the House that we are making good progress in these discussions. My hon. Friend the Economic Secretary, who is here this evening, will update the House on progress on those discussions as soon as is appropriate. I hope and expect that she will be able to do so in the very near future. I thank my right hon. Friend for tabling his amendment. Although I have been unable to respond in full detail, I hope that the Government will be in a position to do so shortly.

In conclusion, I remind the House that it is the Government’s aim to create the most competitive corporate tax regime in the G20. We have set out our plans for reform over the next five years in the corporate tax road map, which was published last November. In order to provide businesses with the certainty they need to invest in the UK, tax reforms need to maintain stability, avoid complexity and ensure a level playing field for taxpayers. Therefore, although we have had a good debate, I invite my hon. Friend the Member for Amber Valley to withdraw the motion.

Nigel Mills: My purpose in moving the new clause was to encourage the Government down the route of tax simplification, which I hope I have achieved tonight. Therefore, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Clause 1

Charge and main rates for 2011-12

Mr Hanson: I beg to move amendment 10, page 1, line 9, at end insert—

‘(3) By 31 March 2012 the Office of Budget Responsibility, in consultation with HMRC, will report to Parliament on the revenue of the 50 per cent. rate of income tax and its impact on the UK economy.’.

Mr Deputy Speaker (Mr Lindsay Hoyle): With this it will be convenient to discuss the following:

Amendment 14, page 1, line 9, at end insert—

‘(3) A report on the impact of the current rates of income tax on inequality in the United Kingdom, also taking into consideration all other direct and indirect taxes including duties and excises, council taxes and mandatory charges for the use of

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cars and televisions and making specific reference to the overall tax rate of taxpayers grouped by decile in the United Kingdom and by each individual constituent country shall be prepared by HM Treasury and laid before the House of Commons not later than 1 December 2011.’.

Amendment 30, page 1, line 9, at end insert—

‘(3) All public sector employees whose earned income does not exceed £21,000 shall be entitled to a £250 reduction in tax liability for the tax year 2011-12.’.

Mr Hanson: I do not intend to detain the House for long on these amendments, although they are important. I particularly welcome amendment 30, which stands in the name of my hon. Friend the Member for Hayes and Harlington (John McDonnell) and my right hon. Friend the Member for Birkenhead (Mr Field), and which I will touch on briefly. Clause 1 deals with rates of taxation and, if approved, will set the rates for the next financial year at 20%, 40% and a special rate of 50%. Amendment 10, which is simple and straightforward, has been tabled by the shadow Treasury team because we want to shed a little light on how the Government will report on their future plans for the 50% rate of tax.

We already know certain key facts. We know that the Chancellor has asked HMRC to collect tax receipts for this financial year and that he has assessed the revenue levels of the 50% rate for this year. In Committee, the Exchequer Secretary said:

“The Chancellor’s Budget statement to the House on 23 March simply highlighted the fact that he has asked Her Majesty’s Revenue and Customs, as part of that ongoing work, to see how much the additional rate actually raises. HMRC will look at all the available evidence about the impact of the 50% rate, including data from the 2010-11 self-assessment returns, which will become available next year.”––[Official Report, Finance (No. 3) Public Bill Committee, 10 May 2011; c. 22.]

My concern, which I will put directly on the table, is that the Government have already prejudiced any decision on the 50p rate of tax by stating clearly that they believe it will do lasting damage to the economy. We want further explanation of the methodology that they will use to consider the 50p tax rate for future Budgets, and I think that the best organisation to do that is the Office for Budget Responsibility. The Government set up the OBR and gave it a number of key roles, one of which I have helpfully drawn from its own website. Under the heading “What we do”, it states:

“We scrutinise the Treasury’s costing of Budget measures: During the run-up to Budgets and other policy statements, we subject the Government’s draft costings of tax and spending measures to detailed challenge and scrutiny.”

All the amendment would do is formally recognise that role in relation to the Government’s forthcoming review of the 50p additional rate.

The Chancellor has said to the House of Commons, the public and anyone who will listen that he sees this as a “temporary measure” and that it will do “lasting damage” to the economy. He has signalled that he will abolish the 50p rate as soon as he can, in line with Conservative thinking before the election. However, the timing remains uncertain. I believe that the Chancellor has pre-empted the review. When HMRC undertakes the review, it will do so on the assumption that at some time around 2013 the Chancellor of the Exchequer will abolish the rate on incomes above £150,000.

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Charlie Elphicke (Dover) (Con): May I congratulate the Opposition on submitting the amendment on time and on its being selected? In relation to this report, I ask the right hon. Gentleman whether it is fair, right and proper that in 1978 the top 1% of earners paid 11% of all tax and that they now pay 25%.

Mr Hanson: I am grateful to the hon. Gentleman. I presume that he does not support the 50p tax rate, whether it raises revenue for the Treasury or not. We do not want HMRC to do a private report for Ministers, and for Ministers then to make political judgments about the 50p additional rate. Through the OBR’s involvement, we want there to be a public report on the impact of the rate which is open to scrutiny.

The hon. Member for Dover (Charlie Elphicke) will know that about 308,000 people are affected by the 50p rate. I am not surprised that he supports its abolition and a lower rate, because he knows that it is paid less in my region in Wales, in the north-west region of my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) and in the north-east region of my other hon. Friends. The benefit of this tax cut, if it happens, will predominantly affect south-east and east England and the wealthier parts of London, although it will not particularly affect the constituency of my hon. Friend the Member for Vauxhall (Kate Hoey). I understand why the hon. Member for Dover wants to get rid of the rate. If he does, there will be a tax benefit for the richest people in our society and for certain parts of the United Kingdom.

All I am saying to the Minister is that we want to see the evidence on whether the additional rate raises money. If it does not raise money, we want to see it openly scrutinised. If it does raise money, we want to expose that, so that if the Minister and his hon. Friends cut the rate, it will be clear that they are doing so for political reasons and not because it is ineffective.

Charlie Elphicke: The right hon. Gentleman should know that in Dover there is a lot of deprivation. My case is not that we should get rid of the 50p tax rate tomorrow, but that we should do so at the right time. My question was simply whether it is safe and sensible for so much of the tax base to depend on so few people in this country?

Mr Hanson: I just say to the hon. Gentleman that in south-east England, which I recollect covers Dover, some 67,000 people pay the additional rate, whereas in north-east England, which is represented by some of my hon. Friends who are present, only 5,000 people pay it. Clearly, there will be a regional imbalance if this tax cut goes ahead. We will consider those issues in due course. I know that there are areas of great poverty and deprivation in Dover, where people do not pay the additional rate, but the hon. Gentleman has imposed value added tax on those people through votes in the House of Commons, and that is an unfair tax.

The simple point I make to the Minister is that we want open scrutiny of the decisions he takes on the ending or otherwise of the 50p additional rate. The leader of the Labour party has said that we would maintain that rate for the duration of this Parliament. The Minister and his colleagues have indicated that

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they want to do away with it. They are now trying to produce the information to show why that should be done. I believe that the Office for Budget Responsibility would provide greater scrutiny of that decision than—dare I say it?—the Minister in an in-house decision. We will test the matter tonight, and I hope that the Exchequer Secretary will accept the amendment. It relates to a core role and duty of the OBR, which is on its website, and I cannot see why he would not wish it to review the Government’s decision formally.

Mr Andrew Love (Edmonton) (Lab/Co-op): Is it not important that the matter is subject to scrutiny, because the Government continue to tell us that they are looking after everyone in the community, including the less well-off? A review would show whether they have plans to reduce the burden on the highest paid.

9.15 pm

Mr Hanson: That is true. My hon. Friend will know that “We’re all in this together” is one of the Government’s refrains, and a review would show whether that is true. I want to know that preferably from the OBR, as suggested in the amendment, but otherwise from the Exchequer Secretary. The Government need to set out why they have decided to reduce the 50p rate in 2013, if that is their decision; what it will cost; what the forgone income will be; and who will benefit. There should not just be internal discussions—the decision should be open to public scrutiny through the OBR.

I am grateful to my right hon. Friend the Member for Birkenhead for tabling amendment 30, which highlights an extremely important issue. Again, I wish to hear the Exchequer Secretary’s response today. I do not wish to steal my right hon. Friend’s thunder, but he will know that the Conservatives pledged in their manifesto to freeze public sector pay, but to exclude from that 1 million of the lowest-paid workers. It stated that they would

“freeze public sector pay for one year in 2011, excluding the one million lowest paid workers.”

Through great effort, he has used parliamentary questions to uncover the fact that that is not the case, and that the Conservative Government have yet again broken a promise in their election manifesto. I believe that he will make a strong case that we need some explanation from the Government of what they are doing about the impact on low pay of the public sector pay freeze that has been put in place.

My right hon. Friend will know that there are issues to consider about the applicability of his amendment to clause 1 and its workability, and indeed its fairness. However, he has highlighted an extremely important issue, and I want the Exchequer Secretary to explain why the Conservatives’ words about ensuring that low-paid workers were not disadvantaged have proved to be weasel words.

Charlie Elphicke: Is the right hon. Gentleman’s position and that of the official Opposition that they support amendment 30?

Mr Hanson: I have not yet heard what my right hon. Friend the Member for Birkenhead has to say about it, but the hon. Gentleman might be interested to know that we have discussions not just in the Chamber but

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outside it as party colleagues. My right hon. Friend will make his case in a moment, and I will listen to it and respond in due course. There are some issues that we need to consider, but it is not for me to respond to amendment 30; it is for the Exchequer Secretary to say why he has let down low-paid workers across the United Kingdom through his promises before the elections and his actions in the Budget. I look forward to hearing my right hon. Friend in short order.

My hon. Friend the Member for Hayes and Harlington has yet again tabled an amendment that has a great deal of merit. Although I do not expect it to be pushed to a vote, I want to hear what he says about it, because he has important points to make. The key point on all the amendments is that the Government need to provide clarity. We need clarity about what they are doing on the 50p tax rate and on low-paid workers, and on the points raised by my hon. Friend’s amendment. I look forward to hearing my hon. Friend, my right hon. Friend the Member for Birkenhead and the Exchequer Secretary in due course.

Mr Frank Field (Birkenhead) (Lab): I shall not press amendment 30 to a Division tonight, because we will return to the subject in greater detail later in the Parliament. However, I want to address some questions to those on the Treasury Bench. I accept that there are problems with the amendment, but it was the only way that I could find to debate the matter in the House.

I wish to remind the Minister that in the Budget debate of 2010, the Chancellor said that

“the Government are asking the public sector to accept a two-year pay freeze, but we will protect the lowest paid…They will each receive a flat pay rise worth £250”—[Official Report, 22 June 2006; Vol. 512, c. 171.]

He said that the cut-off point would be not £18,000 but £21,000 a year, and he, not the Opposition, estimated that 1.7 million people would receive that pay increase.

A number of Opposition Members, including those who put their names to amendment 30, and many hon. Members, have constituents who believed what the Government said. They believed that they would be protected. The Chancellor’s announcement was a crucial part of protecting those workers, but it was also a crucial part of selling to the wider public the pay freeze that the Government announced. However, those people have so far received no £250 pay increase.

I should therefore like to ask the Minister two questions. First, of the 1.7 million whom not I, but the Chancellor, said would be eligible, how many have received the £250 across-the-board pay increase? Next year’s earnings figures show that the numbers eligible will rise to 2.2 million. Therefore, my second question for those on the Treasury Bench is this: how many of that 2.2 million will receive their £250 pay increase?

I conclude by merely trying to express, perhaps inadequately, a sense of how low-paid workers in my constituency feel. They feel that they have again been let down. The previous Labour Government did not do too well by that group, with the 10p tax rate abolition, and this Government have done not too well by them. Many are women coming up to retirement age who now learn that they must work two years more. They thought they would get £250 as a lump sum to protect them

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against rising prices and a general wage freeze, but many now find that no such increase is forthcoming. I would therefore be grateful if the Minister could give us answers to those two questions.

John McDonnell: May I associate myself with amendment 30, which I also signed? For my constituents, £250 means a lot. It is a lot of money in terms of paying daily bills, but it is also the difference between some children having a summer break this year and not. I hope the Minister responds positively and examines that matter, but I will give him this assurance: if we do not have positive assurances from the Government, we will be back time and again until that money is paid.

I wish to speak to amendment 14, which is in my name. The amendment simply proposes that, as we determine personal income tax rates for the coming year, we look carefully at their impact on inequality. The proposal is from various lobbies in recent months, from religious groups, churches, welfare rights groups, trade unions and other civil society organisations, which have expressed their anxiety about inequality in our society. Like them, I believe that our country is disfigured by inequality and the extremes of wealth and poverty. Consequently, I believe that we should use every legislative weapon possible to address it.

I mentioned some of the extremes of wealth and poverty in the earlier debate on executive pay—some top executives earn a salary that is 145 times the average salary of their workers. The Government’s assessment of wealth distribution last year showed that the total wealth of the top 10% of the population is now 100 times that of the bottom 10%. The simple reason is that the poorest have so little wealth.

In 1986 in the UK, the richest 1% held 25% of marketable wealth. Twenty years later, that had risen to 34% of total national wealth. The poorest 50% had gone from holding 11% of the nation’s wealth to holding just 1% today. That is not solely the result of economic trends or globalisation—it has been Government policy, largely in the 1980s and 1990s, to pursue the systematic redistribution of wealth from the poor to the rich, and the last Government at least held back the tide for a period.

Taxation policy has a key role to play in addressing inequality and I note that the Treasury Committee quoted Wendell Holmes’ popular dictum that tax is the price we pay for a civilised society. I agree, but civilisation has a range of definitions, one of which is that we should not live in a society that is so starkly unequal—

Kate Green: I very much support the sentiments my hon. Friend is expressing. Does he agree that it is not only the income and consumption taxes that need to be encompassed in his amendment, but the wealth taxes, especially in light of the examples that he has just given us?

John McDonnell: My amendment proposes examination of the whole range of taxes, indirect and direct. It is interesting that the direct taxation system can be progressive in redistribution, but that the indirect system is so regressive in this country. It has a considerable impact on ensuring that we see these vast extremes of poverty and wealth.

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It is not only the lobbyists from various organisations who have expressed their concerns about this inequality, because the general public are averse to high levels of inequality too. In recent surveys, 80% to 90% have been in favour of a more equal distribution of wealth in our society. We have had various discussions in this House about the impact of inequality, and none better than the debates around the work by Richard Wilkinson and Kate Pickett, “The Spirit Level”, which was ground-breaking.

Richard Wilkinson was an adviser to my party in the early 1990s, when he did the earliest work on the impact of inequality on health. That was revisited in 2005, when he came to the House and briefed several MPs. “The Spirit Level” confirmed what he had suspected in the 1990s and started the debate. The Prime Minister and the Leader of the Opposition have both accepted that inequality is an issue that must be addressed. In 2009, the Prime Minister quoted from Richard Wilkinson’s book in a major speech, demonstrating that the Conservative party at that time was keen to address some of the issues of inequality. He said that

“among the richest countries it’s the more unequal ones that do worse according to almost every quality of life indicator.”

In his first major speech as leader, the Leader of the Opposition said:

“I do believe that this country is too unequal and the gap between rich and poor doesn’t just harm the poor, it harms us all.”

That is based on the work in “The Spirit Level”.

The argument in “The Spirit Level” is straightforward—that when people in the same social class, at the same level of income and education, are compared across countries, those in more equal societies do better on every measurement, be it health, mortality, obesity, teenage birth rates or mental illness. Their quality of social relations is better too. Inequality is socially divisive, increasing the rate of homicide, hostility and racism. The level of trust in unequal societies is lower than in societies that are more equal, and social capital is less —the engagement in civil society and even in political processes. That is why we need to address the issue of inequality when we consider taxes and our financial strategy.

I realise that this has been a contentious debate, and I have read the arguments made by the TaxPayers Alliance, which has tried to rebut Wilkinson and Pickett’s work, but I have also read the more recent independent research studies that have simply reinforced the inequality argument. Whichever side of the argument Members fall, it is clearly an issue to be considered, and that is why I suggest that we look at taxation as a whole—

Stephen Williams: I agree with virtually everything that the hon. Gentleman has said. I have “The Spirit Level” at home and it will be part of my summer reading as I have not had time to read it yet. Does he at least acknowledge that one of the good things that the coalition Government have done is reduce the exposure to income tax of the lowest paid in society, while at the same time increasing capital gains tax? His Government did the reverse.

9.30 pm

John McDonnell: I believe that the hon. Gentleman joined the House at the last election.

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Stephen Williams indicated dissent .

John McDonnell: No. The previous election?

Stephen Williams indicated assent .

John McDonnell: The hon. Gentleman clearly has not been reading my alternative Budgets that I table year after year and which address some of those issues, although he is not alone in not having read them—but there you are!

The purpose of amendment 14 is to examine the issue again and regularly. The equality assessments that we receive from the Government in the budgetary papers consist of one sentence telling us who will gain and who will lose. They do not address the issue of inequality. A wider debate is needed, however, and my amendment would ensure that that debate is revisited and kept in close focus as we determine our financial policies. There have been previous attempts at this, and various reports by various governmental bodies have partly addressed the issue, but they have not been related to specific policy decisions or policy development.

This is more of a plea. The previous Government, of which I had occasional criticisms, set up an excellent initiative in founding the national equality panel under its chair, Professor John Hills. The panel still exists within the Home Office, and it produced a major report in January 2010 entitled, “An Anatomy of Economic Inequality in the UK”. It was extremely detailed and brought together the evidence on economic inequality in our society. It was enlightening and depressing but at the same time motivating. It was enlightening because it exposed not only the scale of inequality but the trend growth over time, which, as I said, was only arrested in the previous decade, not reversed. It was depressing because, as the report stated, the sheer scale of inequalities in outcome—for instance, the sheer scale of differences in wealth—was shocking. The report even implied that it might be impossible to create a cohesive society given the scale of inequality.

The report identified a backdrop of widespread ignorance of the scale of inequality and the lack of awareness in society as a whole among the rich and the poor. It was not just the poor who did not realise how unequal society was; it was also the richest. The report was motivating because it demonstrated that public policy interventions can reduce inequality, particularly interventions around tax and welfare benefits. They can narrow gaps between the rich and the poor and create a more cohesive and successful society. My plea, through this amendment, is that before we agree tax levels, we address the issue of inequality and that we bring forward a further report. I suggest that the national equality panel continues its work, assesses the taxation policies set out in the Budget and brings a report back to the House so that we can be sure that the policies we are pursuing are addressing inequality in our society.

I am obviously aware that through the Child Poverty Act 2010 the previous Government set up the Child Poverty Commission, the remit of which has now been extended to include the issue of social mobility. I am sure that the commission could play a valuable role in assessing the tax decisions in the Finance Bill and their impact on inequality.