As I said earlier, however, of everything that ought to have been done but was not, the failure to act on fuel was the most disgraceful. My criticisms of the previous Government are well known. I criticised the fuel duty escalator and their refusal to act on and outright opposition to measures to introduce a regulator. But this Government
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are no better. Their plan for a stabiliser is no such thing: it will see fuel costs rise by inflation when the oil price is high and by inflation plus—an escalator—when the price is low. A real fuel duty stabiliser would see the rate of duty fall when the price rises, precisely because the UK Government are already getting VAT on the North sea windfall to pay for it.
No doubt the failure properly to address this issue is why the Federation of Small Businesses has expressed its disappointment that the Chancellor
“did not announce a cut in the level of Fuel Duty”.
It is why the Licensed Taxi Drivers Federation has said:
“rising fuel costs are creating detrimental factors”
and leading to businesses being unable
“to invest in businesses as they’d like to.”
It is why bodies as diverse as the Scottish Grocers Federation, the National Farmers Union of Scotland and the Road Haulage Association, among many others, all recognise that rising fuel prices are inhibiting economic growth and are calling for Government action to deal with it.
The costs are being borne across business and society. The NFUS has told me that it is
“very concerned about the rising cost of fuel and its effect on rural businesses and communities. This is being felt most acutely in the Highlands and Islands of Scotland, where public transport is severely limited and fuel prices are among the highest in the UK.”
I say to the hon. Member for Bassetlaw (John Mann) that if unleaded or diesel was only £1.45 a litre in some of these communities, the constituents there would be absolutely delighted.
The NFUS accepts, as we all do,
“that the global price of oil is beyond the Government’s control, however MPs could help to address this critical problem through introducing a fuel duty regulator to cushion the blow of soaring oil prices. Such a mechanism would benefit not only the farming community, but also Scotland’s rural economy as a whole. Transport is at the core of the rural economy, where there is far less scope to use public transport than in urban areas.”
“The cost of transporting the inputs of feed, fertiliser and fuel is so high, as is the cost of delivering produce to the market, that it is putting Scotland’s already fragile rural communities at a competitive disadvantage with other EU producers. Rural businesses could play a vital role in…economic recovery and high fuel duty is holding them back”.
I would have thought that if the Government recognised anything, they would recognise the drag on growth and recovery that all these trade bodies and others recognise in their day-to-day lives. So we need to take action, and we need to take it now. As the NFUS has said, we cannot mitigate all price rises because they occur for a variety of reasons, but we need to militate against the worse rises, particularly when they are driven by the barrel price of oil.
That was the same fundamental point made by the Scottish Grocers Federation, which also appreciated
“that the rising cost of fuel cannot indefinitely be reduced”,
“support any measure which would provide more stability and predictability in fuel prices.”
“The rising cost of fuel, along with other significant increases in overheads including energy prices”—
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“continue to erode the viability of many small and medium sized retailers in Scotland… Government should be doing everything it can to support small and medium sized businesses which are fundamental to economic growth and employment. And that is why we are certain that the Government should introduce a proper Fuel Duty Regulator - to smooth out spikes - provide certainty - allow for investment - And most importantly remove this drag on recovery.”
The FSB spoke for everybody when it said it was
“disappointed that the Chancellor has not announced a cut in the level of fuel duty and that the rise deferred to August is still to go ahead. This will still hit small businesses and households hard and so we need to see a long term solution to address high and volatile fuel prices. We remain concerned that the Government’s Fair Fuel Stabiliser will not trigger an actual reduction in the price paid at the pumps.”
Nor will it because it was never designed to do so. That is why businesses such as those in the taxi trade, which are not in control of their own prices—they cannot set their own fees or fares because they are set by local authorities—have to take this hit on the chin. As the taxi industry said, that is leading to many detrimental factors: profit margins cut, people unable to invest in their businesses in the way they would like to, drivers having to put in extra hours and take-home pay for families reduced.
The taxi industry supports our position on the introduction of a fuel duty regulator, but the Government argue that this cannot be done and that there is no yield to fund a cut in fuel duty. They have made that case several times. But how much worse is it without a regulator in place and businesses of all sorts being forced to take these hits—hits that are a drag on economic recovery? The Forum of Private Business has said:
“The pips are squeaking, and everybody is feeling the pain.”
And by goodness they are. Yet action could have been taken. Businesses and consumers cannot afford to keep paying out more and more for their fuel. There is a serious risk that economic recovery in the UK will be strangled at birth if the Government do not act and act fast.
With those remarks on fuel and the absence of certain measures in the Bill, plus my other remarks, I hope that I have put our opposition on the record. We hope to return, with appropriate amendments at the appropriate stages, to issues such as the 50p tax cut, changes to age-related tax allowances, APD and, most importantly, the failure to deal with the fuel issue.
7.28 pm
Richard Harrington (Watford) (Con): I intend to address my remarks not to the Finance Bill generally, but to the part relating to charities. When I put in to speak, I did not realise that would become one of the great cause célèbres of the Budget debate. I feel I have some experience in this field, having in a previous life spent three years as chairman of fundraising for one of the country’s largest children’s charities. Indeed, it got to the stage where people whom I had known for years would cross to the other side of the street rather than say good morning to me, in the certain knowledge that I would get them for a philanthropic donation. In fact, it was very good experience for speaking in the Chamber, as I seem to have the same effect on people in this place.
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There is a serious point to make, which is that I do not think this debate is about charities; rather, I think it is about whether, in a sophisticated society such as ours, where 40%-plus of gross national product is spent by the Government, certain individuals should have the freedom to decide, for whatever reason, quite legally, that they will not pay any tax at all. Although we are talking about charities—that is what the recent debate has been about—society has to make a decision on that question. Is it acceptable, under any circumstances, for people obeying the law and earning money—a lot of money—to say, for what might be a perfectly good reason, “I’m opting out of paying tax on my income,” in this case because they are giving to charity?
I think back to my 20s, when I started work. People had many different options to avoid paying tax. Pensions were uncapped, so self-employed people could go through their whole lives and pay as much as they wanted into pension funds, cutting their taxes on their salaries in exactly the same way. At one time, there were many investment schemes where the amount of money and the conditions attached were almost open-ended, so that people could legitimately avoid paying tax. There are quite a lot of schemes where Governments—not just this coalition Government, but previous Governments—have decided, for whatever reason, to cap the amount of tax deductibility that is allowed. I know that this is not a popular argument, but I would argue that charities, charitable donations and philanthropy should be no exception to the general rule that everybody earning money in a society such as ours should pay some tax.
Richard Harrington: I am delighted that the hon. Gentleman agrees with me. It had to happen sooner or later in my political career, and I am delighted that it should be today.
Most of us in this House and in the country generally regard the charitable sector as part of all the wonderful organisations that we deal with in our constituencies. In Watford we have the Peace Hospice, which is probably one of the most important hospices in the south of England, along with homeless charities and Mencap. Indeed, we have many good charities, so it is difficult to be the person standing here today and even putting the thought in donors’ minds that there may be circumstances where what they want to give cannot be a tax deductible donation. However, people should be aware that the tax aspect is not the predominant reason for philanthropy—that is my experience. If it is, there is something wrong.
John Mann: I totally support the hon. Gentleman and the Chancellor on this specific matter. Does he not find it rather disturbing that one or two individuals are saying that they will refuse to give to charity if the money has come out of their own pocket, rather than being tax deductible?
Richard Harrington:
I agree very much with what the hon. Gentleman says, but when it comes to it, that aspect is not such a defining factor as those statements would suggest. We must remember that this country is very good at philanthropy. Among the developed nations, we are the third highest in the world, after the United States and Israel, in terms of the amount per head of
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GNP that we give to philanthropic organisations. I do not accept that that is just because of the tax breaks; I think it is because of a tradition in this country. Trade unions and working people are involved in it, wealthy people are involved in it, and business people are involved in it, just as Victorian philanthropists were once involved. All in all, we have a huge tradition of philanthropy.
We are very proud of that tradition, but we have to remember that it is very easy to set up a charity. Even today, the forms are simple to fill in. Within 24 hours it is possible to set up a charity, which is then basically a conduit for almost any form of tax-deductible donation. Many charities are very good organisations—I would be the last person to suggest that there was a predominance of fraud, negligence or dishonest behaviour. However, a lot of charities are charitable to some people, who might think the causes are excellent—for example, I could set up a charity to research the history of Watford, which I might think was an excellent cause, and it may well pass the Charity Commissioner’s barriers to becoming a registered charity, albeit not in any dishonest way, because it would be educational or whatever—whereas a lot of other people might not regard such organisations as very charitable at all. It strikes me as very strange that any such organisation can be set up and, provided it has proper directors and an office—it can also be somebody’s house—all of a sudden it can become a charity to which basically any amount of money can be donated. Such a charity could be based abroad, or it could be for a very narrow sector in this country.
It seems strange that there is a perception that giving money to a charity is a great thing almost by definition, but paying tax is not, yet after all, what does tax pay for? It pays for the NHS and education—indeed, it pays the majority of the money going to many organisations that are perceived as being charitable organisations. For example, many years ago, when my late father was chairman of Mencap—it was then called the National Society for Mentally Handicapped Children, although obviously the organisation has developed a lot since then—5% of its money came from Government sources and 95% came from sponsored walks, charitable donations, rich people, poor people, tins outside shops, or whatever it was. Now it is almost the other way round; in fact, many registered charities depend more on money from the taxpayer than on individuals giving. It seems strange that the media can say that if the Chancellor of the Exchequer wants money for the big public pot, some of which may come from philanthropic giving, one thing is automatically good, almost by definition, and one thing is automatically bad.
As we all know, there is a shortage of public funds, and we cannot—or we choose not to—borrow any more money. I shall not get into those arguments, but I think there is a consensus that public expenditure is fairly high by any traditional standards. The Chancellor is taking a lot of different measures to try to fill a gap. The gap was filled by borrowing, and perhaps it will now be filled rather less than it was by that means—that is what we think will happen. Nevertheless, there is always a gap between what a Government such as this —or, in fact, any Government in recent memory—want to spend and what they can raise. Before the public decide who to criticise, it is important that they should
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remember where the tax saved would have gone, because were those organisations private, it would be perfectly reasonable to regard many of them—be they schools or things like that—as charities. That point should not be forgotten.
It is perfectly reasonable to say that Governments have to think beyond comfortable, cuddly philanthropy, compared with nasty, horrible public expenditure. Governments have to decide on the balance. We have to remember the fundamental point: is it right that people should earn a lot of money and pay no tax at all? There are ways round this problem, and I am sure that the Government will be looking at that in the consultation on the details. Indeed, I would suggest that they might look at “lifelong gifts”—how much money people give in their lives. If someone has a windfall of £1 million, it might be wonderful for them to say for that year, “I’m going to give that £1 million to a charity—I won’t pay any tax, but it’s going to useful causes,” but should they be allowed to do that every year? Should that be their normal way of doing things? Some people may say, “It’s wonderful, because they’re very philanthropic.” Others, if they look it objectively, may say, “Well, each year the state is losing out on £450,000,” or whatever the marginal rate happens to be.
I believe that society has to make a decision on whether people should be able to opt out of the tax system, for whatever reason. I believe strongly in philanthropic giving, in charities and in tradition, but, as with everything else, there has to be a compromise. It is unacceptable that people, irrespective of their income, should be able to choose not to pay tax using a variety of avoidance methods, one of which might be charitable giving.
I found it strange to hear the hon. Member for Leeds West (Rachel Reeves) criticising the proposals on charitable donations. She should consider whether it is right that some multimillionaires pay no tax at all, and that some people should be able to choose what good causes to support. Should people be able to choose to support, say, the National Theatre, the opera and Christian Aid, while choosing not to support the national health service, education and social services? I ask the Opposition to consider that point before being so critical of the Government’s desire to make tax fair for all and to ensure that very wealthy people no longer pay no tax at all.
7.41 pm
Katy Clark (North Ayrshire and Arran) (Lab): It is a pleasure to follow the hon. Member for Watford (Richard Harrington). He made an interesting speech on an issue that we shall no doubt hear a great deal about in the near future.
The Finance Bill and the Budget are a huge wasted opportunity. So much needs to be done now, with more than 1 million young people out of work and a manufacturing base that is continuing to decline. We are continuing not to see the growth figures that we need if we want even to start talking about paying back the deficit. Many of the contributions from the Government Benches today have shown yet again that the Government’s policies are simply not going to get us out of this mess.
I believe that the Government’s position is ideologically driven. Many of their Members would believe in their policies irrespective of the economic position that we were in—for example, the comments about the need to
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get rid of employment protections in the workplace and to get rid of red tape would be made irrespective of whether we had 10% growth or negative growth in this country. The debates that we are having here are similar to those taking place across Europe, the United States and the west generally. We face massive challenges, but the answers being provided by Opposition Members, from whatever political party, are very different from those coming from Government Members.
Jonathan Edwards: Does the hon. Lady agree that what we are hearing from the Government Benches proves that the political right never lets a good crisis go to waste? Following the downturn in the economy, the Government are looking for further erosions of workers’ rights, which is extremely worrying and typical of right-wing politics.
Katy Clark: When we look at history, we see that, during economic crises, those on the right argue for policies that they would not get away with in other circumstances. We have seen that happen time and again. Perhaps the most comparable economic situation is that of the 1930s, and history shows that the policies that worked then were not those of tax cuts, of huge public spending cuts or of rolling back the state; they were the kind of Keynesian policies to which many Opposition Members are now sympathetic.
The policies of austerity that we are seeing not only here but across Europe are simply not working. We require very different policies from those in the Finance Bill and those being implemented across a range of Government measures. My party’s Front Bench has already mentioned the figures from the Institute for Fiscal Studies, which show that the average family is losing between £530 and £551 a year as a result of the measures being brought in now. The changes to tax credits being implemented are a central plank of the policies that will take away money from not only the poorest people, but those on modest incomes as well.
My right hon. Friend the Member for Knowsley (Mr Howarth) has already talked about the impact of the measures on his constituents. My constituents, too, are coming to see me to talk about these issues. For example, last week a nurse came to see me: she works 16 hours a week, her husband is retired, and she has a 13-year-old child, and she is losing £3,700 a year as a result of the changes to tax credits. She works 16 hours a week at Crosshouse hospital, and she has asked to increase her hours to 24 a week, but the hospital has not agreed to that. That is the reality of the situation for the many families who are going to be affected by the tax credit changes, including more than 11,000 families in Scotland alone. Unfortunately, in the present economic circumstances, many employers will not be in a position to offer more hours, even if they wish to do so. That is just one example of the way in which the Government’s changes are affecting people.
As I have said, I believe that the Budget is a missed opportunity. We have heard about the Government’s radical proposals for deficit reduction, and indeed we are seeing the impact of those policies in all our constituencies. We are seeing what were considered to be essential public services being cut. We are seeing services being taken away that individuals and communities fought for, generation after generation, and that did not
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come easily. The incomes of the richest people in this country have increased by about 20% over the past two years, but the incomes and living standards of most people, including the poorest people, are going down.
The Finance Bill does nothing to address any of those issues. It does nothing to address the inequalities in wealth in this country. The Government’s policies simply exacerbate problems that we already have. The Bill will do nothing to bring about the essential increase in jobs and growth that we need. We will start to pay off the deficit only when the economy starts to grow, but the Government are taking money out of the economy and out of communities such as North Ayrshire, which is disproportionately reliant on the public sector because the manufacturing sector that we relied on in previous decades no longer exists. We are seeing money being taken out through cuts in the welfare sector and the welfare state, and through cuts in benefits and tax credits. The measures that are now being implemented are taking money out of the pockets of some of the people who need it most.
I say to the Government that we need policies that will stimulate growth. They should use every financial lever at their disposal for that purpose, rather than introduce tax cuts for the wealthy in the form of a rate reduction from 50p to 45p, and a cut in corporation tax, which is an ideologically driven measure that will have no impact on jobs and growth. My hon. Friend the Member for Leeds West (Rachel Reeves) mentioned the figures from Ernst and Young which suggest that the Government’s measures could lead to negligible growth of 0.1% and have all sorts of other ramifications.
The Government have talked about being a Government for families and about us all being in this together, but the reality is that the Finance Bill, like many of the other measures that they are introducing in this place, week in, week out, will simply make Britain a less fair country, a less equal country, in which the gap between rich and poor, and between north and south, will become greater as time goes on. Furthermore, this Budget will not help the country to start to reverse its industrial decline. For much of my adult political life, I have been able to talk about us being the fourth richest country in the world; now we are the seventh richest, as we have failed to keep up with other countries that are advancing, failed to value our industrial base and failed to value our manufacturing. The Bill will do nothing to address any of these things. Frankly, this Government should be ashamed of coming forward with these proposals at this time. To a large extent, they are a political fix between two political parties in coalition, and they will do nothing to address the real problems that our constituents are facing.
7.51 pm
Mr Edward Leigh (Gainsborough) (Con):
Everything that the hon. Member for North Ayrshire and Arran (Katy Clark) says would be fair enough if what this Government were doing were any different from what a Labour Government would have been doing at precisely this time. The public sometimes lose track of the reality of the situation that we are in. We politicians talk in terms of billions or—perhaps soon—trillions of pounds, but a constituent put it to me like this, offering a better way of describing our situation. It is as if we were somebody who had an income of £50,000, who had
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knocked up a credit card debt of another £50,000, and who had promised to repay £4,000 of it but was actually repaying only £2,000. We are in a dire financial situation. I suggest that whoever were in government at this time would be doing much the same. In fact, I suggest that what the Government are doing is the bare minimum necessary to maintain market confidence.
We have had a lot of debate about the ratings agency, and I am sure that the Labour party is gearing up to tease the Government if there is any decline in our rating score, yet if we did anything less than what we are doing to address this deficit, we would be in dire trouble with the markets, and I have no doubt that interest rates would eventually have to rise, with all the consequences we know about for businesses and for ordinary mortgage payers. I therefore do not accept this apocalyptic view of the Government’s proposals. As I say, the Government are doing the bare minimum necessary to maintain market confidence.
I do not accept either the argument put forward by the hon. Member for North Ayrshire and Arran that there is some sort of right-wing plot—that we have been waiting for years for this crisis in order to take a stab at Keynesian politics and that, really, all we are interested in is a slash and burn of the public services. It is hardly a slash and burn, given the sort of figures we are talking about. In fact, Government spending is as high as it has ever been. All we are doing is trying to get to some sort of grip with the deficit.
Personally, I have always argued that the economy would benefit from deregulation and from simplification particularly of the tax system, leaving aside the total size of the public sector. I would have thought that Members on both sides of the House could accept that what is needed is simplification. How, then, are we going to get it?
I spoke in the Budget debate at about 6 o’clock. Such is the complexity of the modern Budget process that it is difficult for people to get a handle on what is going on as it is being enunciated by the Chancellor of the Exchequer. I was teased by one of the Whips because, apparently, precisely as I stood to say that it was a courageous Budget, coincidentally all the press started turning against the Government—and it has been pretty bad ever since. I say that it is courageous because the Chancellor has started to take some difficult decisions to simplify the tax system. We have heard a good speech about charitable giving. So much of the so-called bad publicity that the Government have attracted over the Easter break—whether it be over the so-called granny tax or charitable giving or child benefit or all the other problematic areas—shows that the Chancellor is beginning to try to address these appallingly difficult structural problems.
There has been a lot of talk about the Titanic this week—nobody should worry, as I am not going to repeat the tired old cliché about deck chairs—and I think that the whole structure of the ship is wrong when it comes to the tax system. The ship is unbelievably badly built, and it is gradually sinking under us. What I have found in listening to 28 successive Budgets in this Chamber is that the tax system has become progressively more complex. It was possible 25, 30 or 35 years ago for a Chancellor to come across as providing a reasonably coherent lecture in his Budget statement—we all used to
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get very excited because tax on whisky or the basic rate of tax was going to go up or down by 1p—but such levels of complexity have been loaded on to the whole tax process that it has become virtually impossible for any Chancellor to come out on Budget day with any coherent proposal that is not in succeeding days unpicked and trashed because of the hundreds of pages of small print. If the structure is fundamentally flawed—it is, I think, the longest tax code in the world apart from India, and one of the most complex in the world—it is virtually impossible for any Chancellor to get a grip on it. I have never made any secret of my personal belief that we have to be prepared to be radical. We cannot just try to improve the structure; we have to go back to first steps and argue what we really believe in. What I really believe in is a much flatter—ideally, flat—rate of tax.
I have recently read an excellent book written by one of our colleagues, my hon. Friend the Member for Stone (Mr Cash), about the 19th century statesman John Bright. He was wholly uninterested in politics, but was a substantial statesman, who continually argued in terms of retrenchment, sound public services and a sound financial system. He said:
“Better teach the people something good for the future than resign oneself to work institutions already in existence”.
I suspect that too many politicians—I do not blame those on the Treasury Bench, as I know what they are paid to do—are fundamentally doing what John Bright did not want to do, which is resign themselves to work institutions already in existence. I think that the purpose of politics, certainly for those on the Back Benches, is to try as John Bright said to try to teach the people something good for the future.
I believe that this idea of a much simplified tax system or a flatter and ultimately a flat rate of tax, which has always been dismissed as an idea of the radical right, is of increasing interest to those on the left. Why? We have heard a great deal about tax avoidance, and the more complex the tax system, the easier it is to avoid it. Every time we try to deal with the problem, we create more loopholes and more difficulties, making it easier for the rich to avoid paying tax. With a much flatter—ideally, flat—rate of taxes, there is no possibility for avoidance. The TUC claims—I am sure it is right; it is not known to be a particularly right-wing organisation—that tax avoidance results in a loss to the Treasury of £13 billion a year from individuals and £12 billion a year from corporations.
To make another left-wing point, some politicians have recently had a bad press; they have been standing for various public offices or arriving in this House with good incomes outside politics, but instead of paying tax like the rest of us at the basic and then higher rates, they have put their money into private companies in order to pay much lower rates. Some politicians in America who have huge incomes, including some bidding to become President, have had a very bad press, as we found that they paid minimal rates of taxation. Why is this? It is because the tax codes in both countries are so complex that the rich and the powerful can always avoid paying tax. They cannot do that, however, under a much simplified tax system.
Charlie Elphicke:
Does my hon. Friend not think that politicians should give a lead? It is not just Ken Livingstone who has been egregiously avoiding paying tax. It is clear
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from the Register of Members’ Financial Interests that some Labour Members have been routing their funds into private service companies. Should that not be stopped; should not politicians set an example?
Mr Leigh: I do not want to ruin my argument and I do not want to lose any support that I might have from my friends on the Opposition Benches by recommending a tax on particular Labour politicians. The trouble is that there is always a huge temptation for anyone with a high income—a politician, an entertainer or a business man—to listen to the advice provided by chartered accountants. They will say, quite rightly, “Oh dear, why is a successful chap like you”—a successful chap like, for instance, my hon. Friend the Member for Dover (Charlie Elphicke), who doubtless has a very large income—“paying all this tax, when you could be setting up a small company and paying about 11%?”
In the past I have argued for a much flatter, ideally flat, rate of tax throughout earned income, but now I will be even more radical, and suggest that there is an increasing case for transposing that to small company income. I am not privileged to serve on the Treasury Bench, and I do not have teams of civil servants to advise me. I constantly come up with ideas such as this during Finance Bill debates, and I can produce figures, but I do not know whether they are correct. I have been told that a flat-rate tax of 22% with a £15,000 allowance would result in a reduction of £63 billion in tax revenue in the first year. Although I believe that the extraordinary savings that would be made through the ending of tax avoidance might well enable us to claw that back, there is no point in my simply going to the Library and then coming up with figures.
I see that the Minister is busily scribbling down every one of my pearls of wisdom at this precise moment. It would be really nice if, rather than just saying at 10 or 10.30 tonight “I thank my hon. Friend the Member for Gainsborough for making such an interesting speech”, he wrote to me in the next week or two, when he has the necessary leisure, telling me—on the basis of the Treasury model—how much of the cost of avoidance could be saved through the adoption of a much flatter, or ideally a flat, rate of taxation, under which it would increasingly not be worth people’s while to try to shift their income from one pot to another. Is that, in fact, such a radical idea? Has it been tried out anywhere else? Well, of course it has.
As I have said, the size of the UK tax code has more than doubled since 1997. The present situation is absurd. The Chancellor is doing his best, but whereas 15% of taxpayers will pay a higher rate in 2012, only 3% paid it in 1978. Graphs showing the rise and fall in people’s incomes according to whether they have one child or more feature extraordinarily sudden and tremendous blips because of the child benefit clawback from people who earn more than £50,000 a year, of which I have been very critical. I do not know whether this is correct, but I have been told that a family with three children and an income of between £50,000 and £60,000 faces an additional effective marginal tax rate of 24%, on top of income tax and national insurance. I cannot believe that the Chancellor wanted to impose such a sudden, steep burden of taxation on middle-income taxpayers.
Many Members favour helping people on very low incomes. I happen to believe that the best way of helping poor people is not to churn more and more tax and
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benefits in their direction so that they have very high marginal tax rates—as high as 73% in the case of those who increase their earnings if they earn less than £10,000—but to take them out of tax altogether. Let me say to my Liberal friends that the one good thing that they have done in recent years is to present that argument, and I think that they have made their case. An extraordinary burden has been placed on people on lower incomes, who have been taxed far too much far too early.
I believe that my idea of a flat rate of tax is not such a radical or bad idea but one that could appeal across the spectrum, and I urge my hon. Friends on the Treasury Bench to consider it carefully. Otherwise, every time the Chancellor seeks to tamper with the screws and the bolts on the Titanic to ensure that those watertight compartments do not just reach halfway up the forward decks but reach the top so that the thing does not sink, he will produce a Budget that sounds good on the first day but will be unpicked and unpicked.
I think that, rather like John Bright, the Chancellor needs to see that shining light on the horizon. He needs to say, “This is my strategy, this is my philosophy, this is what I want to do. I want to say to the British people that ultimately I will take pretty much the same share of the cake as has been taken in recent years.” We all know that, for all Mrs Thatcher’s reputation for being such a right-wing radical Prime Minister, it was only after many years that, by an almost infinitesimal margin, she gradually reduced the extent of the state’s take from ordinary people. It may be impossible for the Chancellor to make a great deal of difference in those terms, but he can say, “This is my strategy. I want to be upfront and fair to the British people, so that they know exactly where they stand. If you have an income of £300,000, I will take a third of it: I will take £100,000. If you have an income of £100,000, I will take £33,000—and so on across the spectrum.” Then there will not be all the hillocks and valleys and clawbacks and allowances and churning of benefits and taxation.
I am, in a sense, sympathetic to the philosophy behind what the Chancellor has been trying to do with child benefit. Why should middle-income earners pay tax at a certain level and then be handed it back in child benefit? I agree with the Chancellor that that is absurd. However, he got himself into a dreadful mess by taking the appalling step that meant that the moment there was one higher-rate taxpayer in a family, all that family’s child benefit vanished. I thought that that was very unfair on a family in which one person worked and another, usually the wife or female partner, wanted to stay at home and look after the children. I am not suggesting that such an arrangement is better or worse than the other form of family life, but I believe that it is simply unfair, which is why I have argued for a marriage tax allowance.
I will do a deal with the Chancellor. I will give up my campaign against his reduction in child benefit and my campaign against his continued failure to introduce a marriage tax allowance, despite what he said in his manifesto, if he will say to me, “I will get rid of all these allowances, and introduce a greatly simplified tax system which is fair and equitable for all classes of people.”
I agree that there should not be a tax system that distorts people’s choices. I agree that any attempt to influence behaviour through the tax system, whether it affects marriage, children, mortgage tax relief—as in
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the old days—or, now, charitable giving, will produce perverse incentives. It will cause people to adjust their behaviour to reduce their tax bills rather than doing what is right, and I want people to do what they feel to be right. I want the state to be open, fair and upfront about what it is going to take, and I want the Chancellor to come to the House and say in his next Budget “This is my strategy, and this is my belief.”
I accept that—bravely, courageously, with great difficulty, and in the face of an enormous amount of bad publicity over the last three weeks—the Chancellor has taken the first essential steps towards getting rid of those allowances, and I am prepared to stand by him. I am prepared to be unpopular over the granny tax, because I can see where he was coming from. The Chancellor considered it absurd for people to be paid that allowance. Although it was apparently very popular, when there was talk of abolishing it, no one remembered that it had been introduced by Winston Churchill in 1925. I am prepared to be unpopular by supporting the Chancellor on all those issues if he is prepared to enunciate his philosophy of creating a fairer and simpler tax system. That is a fair deal, I think.
8.8 pm
Diana Johnson (Kingston upon Hull North) (Lab): It is a pleasure to follow the hon. Member for Gainsborough (Mr Leigh), who made a valiant effort to persuade the House that the proposal for a flat tax was something on which the left and the right could agree. It will be interesting to see how Ministers respond to the challenges with which he presented them.
I intend to concentrate on an issue that greatly concerns my constituents and local businesses. I have already raised it in the House several times, and on the day of the Budget, when I was flicking through the accompanying documents, I saw the announcement that VAT would be levied on static caravans. I have noted what the Treasury has said about the effect, and the more I have looked into it over the past couple of weeks, the worse it has appeared to be for my constituents and local businesses. The VAT on static caravans policy is part of the muddled approach that runs through the Budget. The Government are giving mixed messages: they say they want growth, yet they introduce policies that impede growth. There are also many unintended consequences that Ministers and civil servants have not properly thought through, and that is particularly true of the VAT on static caravans policy.
The caravan tax announcement came completely out of the blue. It is currently subject to a belated consultation that will end very shortly, on 4 May. My understanding is that it is to be implemented in October. The effects of this proposal must be properly scrutinised and debated fully. I am therefore disappointed that the consultation period is so brief.
My Front-Bench colleagues have tabled an amendment to the proposed tax, which I hope will be selected during our deliberations on the Bill. In common with many Members on both sides of the House, I oppose the Government’s proposals on this issue. The caravan tax was not leaked in the announcements before the Budget at the end of March. Like the granny tax, it was news that was kept back, but which has subsequently caused a lot of problems for the Government.
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The confusion over the caravan tax is similar to that over the pasty tax. It is also similar to the confusion over the charity tax measures. Before the election, the Government talked a lot about wanting to encourage charitable giving, and there are provisions in the Finance Bill to offset charitable giving against inheritance tax. However, the proposals to limit tax relief on charitable giving that were also announced in the Budget and that are contained in the Finance Bill appear to contradict those earlier statements.
First, I want to outline some of the arguments in respect of imposing VAT on caravans. I listened with great interest to what the Chief Secretary said in his opening remarks about simplifying tax regimes and ironing out anomalies. We all support that, of course, but we must ensure that there is proper and full consultation in advance of any changes being implemented. My main concern is the effect on the ability of businesses to plan accurately for the future and decide what they need to do—what investments they need to make, and how many employees they need in their company. Investors need confidence, but a key point that comes up time and again is that companies do not currently have the required levels of confidence for the economy to grow.
Recently, the Government have made similar mistakes that have dented business confidence, such as the solar power feed-in tariff debacle. As a result of that mistake, we in Hull have already seen Carillion restructure. We will lose jobs, and Hull cannot afford to lose any jobs.
The caravan industry has spent three years working hard to recover from the problems resulting from the 2008-09 global downturn, when Hull lost more than 1,500 jobs in the industry. Now we have this hammer blow set for October, when thousands more in the caravan sector may lose their jobs. If tax changes are to be made, it would be sensible to give greater warning and to give the industry time to adapt. Instead, the Government appear to be kicking people when they are down, just as the caravan industry was getting back on its feet. Most particularly, this is happening in Yorkshire, and it will have an effect on the entire region. Ministers talk a lot about the need to rebalance the economy in respect of the public and the private sectors and the south-east and the rest of the country, yet this measure will have a disproportionately negative impact on the north and Yorkshire.
Secondly, these changes will not do much to simplify the system. Indeed, we could end up with more anomalies being created, as with the pasty tax. The taxing of sales of static caravans was considered at length and rejected when VAT was first introduced in the UK in 1973. There has not been a proper opportunity to review that decision and to investigate whether the situation has changed in the intervening years.
Thirdly, what if the changes damage businesses and cost private sector jobs, which are supposed to be powering recovery, growth and deficit reduction? Over 90% of the UK’s caravan firms are in east Yorkshire, and they still employ some 6,000 people despite the contraction in the 2008 global downturn. The industry supports a further 15,000 to 20,000 jobs through its supply chain. The Treasury forecasts that the caravan tax will cause a 30% cut in demand. According to the industry, that will result in up to 3,000 jobs being lost from caravan firms and their supply chain.
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The situation could get even worse. We are currently facing almost 900 jobs going at BAE Systems in Brough, and our area already has high levels of unemployment. We have already seen jobs go at Warmsure, too, and at Comet and P&O in Hull, and many jobs are going in the public services as well.
My constituency of Kingston upon Hull North and the neighbouring constituency of Kingston upon Hull East are already in the UK top 10 for having the most jobseekers chasing each job. The number of NEETs—those not in education, employment or training—is soaring as the quality and quantity of jobs, apprenticeships and training opportunities have declined. In my constituency, unemployment now stands at about 13% for those aged between 16 and 64.
The next few years already looked like being tough for jobs in Hull, but by introducing this measure, the Government are making the situation much worse. The Government’s “rebalancing” rhetoric that we hear so much does not hold water.
Fourthly, what if the economic damage caused by the caravan tax leads to the Treasury losing revenue overall? The Treasury’s own impact assessment shows that the tax will lead to a 30% cut in demand for static caravans. Consequent job losses on the scale predicted by the industry will result in tax revenue being lost and welfare costs increasing. As the right hon. Member for Haltemprice and Howden (Mr Davis) said in this House on 26 March, the Chancellor’s own Red Book states that the total annual revenue raised from this measure will be £40 million, but the cost in unemployment from losing 30% of business, as forecast by the Treasury, will be up to £45 million. The caravan tax would therefore actually lose revenue overall. That is a crazy policy. That point was brushed aside by the Chief Secretary to the Treasury in his winding-up speech on the Budget.
The justification for cutting the 50p rate of tax was that it does not raise much money, but according to the Treasury’s own figures the caravan tax will lose revenue overall. The Government also cut corporation tax on the basis that that is good for jobs and growth. By the same logic, how can the caravan tax be good for jobs and growth in my constituency and the wider region?
I realise that the Chancellor is as likely to have had a caravan holiday recently as he is to have eaten a pasty or played bingo, but there is no excuse for introducing a damaging tax that will cost thousands of private sector jobs in the caravan industry and its suppliers, especially as the private sector is precisely where Ministers claim our growth will come from. This measure will lose the Treasury revenue, harm the aspirations of many people saving up for a holiday home, and damage the wider UK holiday industry.
Fifthly, is the caravan tax fair? Given that the Budget did not put VAT on the second homes of the wealthy and did not contain a mansion tax, how is it fair to tax the second homes of those who are not so wealthy and often save for many years to be able to buy a static caravan to use on their weekends and holidays? The Chancellor’s rhetoric is that he is trying to build a tiger economy, but it seems more like just a fat cat economy.
Along with my hon. Friend the Member for Blackpool South (Mr Marsden), I visited Willerby Holiday Homes Ltd in east Hull on 26 March to hear its serious concerns about this measure. I have also received a letter, dated
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today, expressing concerns about what will happen to its 820 workers, 100 of whom are young workers under the age of 25. On 5 April, along with the hon. Member for Beverley and Holderness (Mr Stuart), the right hon. Member for Haltemprice and Howden, the hon. Member for Brigg and Goole (Andrew Percy) and my hon. Friend the Member for Kingston upon Hull East (Karl Turner), I met representatives of caravan firms in the Hull and East Riding area, and the information we received about the damage that this tax could do was devastating. Some 44 employees of Normandy Holiday Homes in my constituency have written to me saying:
“We are concerned that the proposed VAT increase on caravan holiday homes that was announced in the Budget last month will have a detrimental effect on the business. We have already had a number of short time working weeks in this tax year and we are concerned that if the level of orders falls, the company may be forced to make people redundant or cease trading.”
In addition, I have received letters from people involved in the supply chain to the caravan industry, one of which came from six workers at 3Core group, which supplies Normandy Holiday Homes. The letter said that the caravan tax would have a “detrimental” impact on them, too. In addition to letters from caravan firms and their direct suppliers, I, like other right hon. and hon. Members, have received an e-mail from May Reader of Heathland Beach holiday park in Norfolk. She says:
“We, as a family, have been running our Holiday Park for 40 years and I personally am Chairman of our local Conservative Association and I am very distressed that it is a Conservative Government that is about to ruin a lifetime’s work.”
That shows the negative impact that the caravan tax would have on the UK holiday and tourism industry, at a time when, as many hon. Members have said, there is a push to get people to holiday in this country and there is a vogue for staycations.
To be fair, some Conservative Members are joining Labour Members in opposing this particular tax; I know that the right hon. Member for Haltemprice and Howden and the hon. Member for Beverley and Holderness are planning to meet the Chancellor on Wednesday. It is being reported on the wires that the Prime Minister is willing to think again on the charity relief tax plan, so I hope that he is also willing to think again about the caravan tax. I am also interested to learn what the response will be from the Liberal Democrat Business Secretary, to whom the National Caravan Council wrote about this issue on 12 April. So far we have seen the Liberal Democrats, yet again, defending the Treasury view to the hilt.
In conclusion, my constituents just want the chance to work, to trade, to earn a living and to spend money locally in east Yorkshire. That is all those workers and business people want. They are not asking for a state subsidy. They are just asking for their industry to be allowed to carry on trading without being seriously harmed by this new tax. That is in the regional interest and in the national interest, and I hope that the Minister will think again. As I said at the start of my speech, Labour has tabled amendments on this issue and I hope that we will have a chance to stop the caravan tax on Wednesday through the amendment to the Finance Bill tabled by my hon. Friend the Member for Pontypridd (Owen Smith), the shadow Exchequer Secretary. If the Chancellor does not change his mind, I ask hon. Members to back this amendment. Let us kill this caravan tax before it kills thousands more jobs in Hull and the East Riding of Yorkshire.
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8.23 pm
Stephen Williams (Bristol West) (LD): I wish to make only a short speech in support of giving this Bill a Second Reading, because I made a speech on the broad thrust of the Budget on Budget day itself and because, once again, I have been the lucky winner of the Liberal Democrat Whips Office lucky dip competition and will be serving on the Committee. I therefore have many days ahead of me going through the Bill’s detailed provisions, both in this Chamber and on the Committee corridor upstairs.
One Budget highlight of a month ago for Liberal Democrats was the largest rise in history of the income tax threshold. My hon. Friend the Member for Gainsborough (Mr Leigh) mentioned John Bright, and I am sure that John Bright would have approved of that simplification of the tax system, as it would have disproportionately benefited the thousands of factory workers that he represented in Birmingham. Other highlights of the Budget were the introduction of effective wealth taxes and anti-avoidance measures, and, in order to make the United Kingdom more competitive internationally, the two reductions in corporation tax scheduled for the next couple of financial years.
Taken together, those measures in the Budget involve billions of pounds, but since the Budget we have heard much about the pasty tax, the granny tax, the church tax and the charities tax. Now we hear from the hon. Member for Kingston upon Hull North (Diana Johnson) about the caravan tax. I had not heard about that before, but no doubt we will take much interest in it as the Finance Bill progresses. Even though all those measures and all those controversies are important in their own right, the focus on them suggests that the broad thrust of the Budget—rewarding work, taxing wealth effectively and making the United Kingdom economy more competitive—was right and that the Chancellor and Chief Secretary struck the right Budget judgment.
All those measures will, of course, be discussed during consideration of this Bill, which is another behemoth of a Bill. Every year we hear that the Treasury has produced another mammoth Bill and this one seems to be a bit of a record, as it contains 225 substantive clauses and 38 schedules. We can all look forward to dealing with them over the next few weeks.
Clause 1—it is rightly clause 1—is the Bill’s most important, because it announces the increase in the personal income tax threshold that took place on 6 April, while we were on recess, raising the threshold to £8,105. We know from the Budget statement that in a year’s time that threshold will be raised to £9,205. Cumulatively, since the general election, we will have raised 2 million people out of the income tax net altogether and provided a tax cut in cash terms of more than £500 to more than 20 million basic rate taxpayers. We also know that there is to be a proposed stamp duty charge on properties worth more than £2 million. As the hon. Member for Kingston upon Hull North said, we do not have a mansion tax, but we do have a mansion duty—a new stamp duty charge on properties worth more than £2 million. This was indeed a Budget that gave a tax break for the millions while taxing effectively the wealth of millionaires.
In business terms, the Liberal Democrats very much welcome the fact that corporation tax will be cut this year to 24% and next year to 23%. We also welcome the
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introduction of yet another scheme to encourage entrepreneurial activity, the seed enterprise investment scheme. It is a five-year scheme to support small business start-ups. As the Member of Parliament for Bristol West, I particularly welcome the announcement in the Budget of a consultation in order to proceed to giving tax credits to the television industry, and, in particular, for animation, on the same basis as those for the film industry. I met Aardman Animations Ltd, which is based in my constituency, last week and I understand that discussions between the Treasury—with my hon. Friend the Exchequer Secretary and his colleagues—and the animation industry are progressing well. I look forward to the Finance Bill 2013 and to the full provisions for that tax credit to support important British business being introduced in a year’s time.
Anne Marie Morris (Newton Abbot) (Con): Given the hon. Gentleman’s interest in small businesses, does he welcome, as I do, the new provision for a cash-based tax return that will make it much simpler for small businesses with turnovers of less than £77,000? Simplifying the tax return and making it cash-based is a real step forward for the smallest businesses.
Stephen Williams: Yes. I welcome my hon. Friend’s intervention. When I met representatives of the Federation of Small Businesses, they were particularly keen that that measure should be introduced in the Budget and they are no doubt very pleased that the Government have responded to their representations and those made by hon. Members, such as my hon. Friend, on its behalf.
The anti-avoidance measures in the Budget and the Bill are also very much welcomed by the Liberal Democrats, particularly the consultation on introducing a general anti-avoidance and anti-abuse role based on the paper prepared for the Treasury by Graham Aaronson. We will need to wait until the next Finance Bill to see how that pans out. There are also specific anti-avoidance measures in the Bill, such as those to tackle the use of envelope schemes by corporate bodies and unincorporated bodies to acquire properties while avoiding stamp duty. That abuse was overlooked for far too long by the previous Administration and I am delighted that the coalition Government are tackling it head on.
Other more controversial potential abuses are being tackled in the Bill through the limits on tax reliefs that individuals are able to claim. Before the Budget, the Deputy Prime Minister talked about a tycoon tax. Across the Atlantic, President Obama has been talking about a minimum rate of tax, such as 30%, that US citizens should be expected to pay, and Warren Buffett has been making very similar points. We have many reliefs available in our tax code in this country to encourage enterprise, such as the enterprise management incentive scheme, the enterprise investment scheme and the venture capital schemes of which, in my life before 2005, I used to help many businesses and entrepreneurs to take advantage.
The Bill provides another relief, the seed enterprise investment relief, but all the reliefs available at the moment are capped. They are limited as regards both time and the amount that can be put into them, and therefore the amount of tax relief—whether it is on income tax or capital gains tax—that a wealthy individual might be able to obtain. That leaves various uncapped
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reliefs that are available under our tax code for income tax losses, loan interest and, of course, philanthropy, which is where a lot of the controversy has come about in recent weeks.
From the outset, it is right to say that the extension of restrictions and caps on reliefs, whether they are on gifts to charity or loss reliefs, is entirely logical. When restrictions are imposed on existing reliefs, such as gift aid, the Government and the Treasury must take greater care than when they are imposing reliefs from the outset for a new scheme, such as the seed scheme. The Government and the Chancellor have already said that they intend to work very closely with the charitable sector on the introduction of the restriction on gift aid, and I hope that that will lead to a measure that meets the Government’s objectives of protecting our tax base while ensuring that philanthropy can continue.
It is important, however, to say that, contrary to much of the coverage that we have read about and that constituents have written to us about, the restriction on reliefs is not the same as the abolition of reliefs. The phrase “charities tax”, which has been bandied around the Chamber this afternoon, has left hanging in the air the implication that the Government are somehow withdrawing tax relief from philanthropic activities altogether. That is simply not true. An individual will still be able to donate and receive tax relief on the higher of £50,000 or a quarter of their annual income. Some of us might dream of this, given the salaries that we are on, but if we had an annual income of £1 million, we could still donate £250,000 to charity while receiving full tax relief. I understand from figures that I have seen from the Charities Aid Foundation that the median donation that our constituents make is about £11 a year, so very few people will be affected by what the Government have proposed. It is right that such details should be closely considered by the Treasury and by all of us, as parliamentarians, to ensure that they work.
There are various things that the Government could do. The limits are annual and perhaps they could consider rolling up the annual limits. If you, Mr Deputy Speaker, were to win £1 million on the lottery, you would not be able to donate an amount to charity under the Bill’s provisions while getting tax relief and while, more importantly, the charity got the gift aid matching relief, too. That would be an absurd anomaly and I am sure that it was not intentional.
Jacob Rees-Mogg: My hon. Friend talks about someone winning £1 million on the national lottery but a £1 million win on the national lottery is not taxable; one ought not to get tax relief on a gain that is not taxable.
Stephen Williams: I am trying to think whether my hon. Friend has caught me out on a provision, but I am not sure that he has. The reason there has to be a £50,000 limit on relief is that most people who give large amounts of money do so out of their accumulated wealth and their asset base, which may have come from a lottery win or from an inheritance. It is likely to be a one-off event in their life when they receive a large amount of money and philanthropically decide to give much of it away. It would be absurd if the charity was not able to claim higher rate income tax relief if the individual who received that one-off legacy or windfall gain was not able to claim gift relief.
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Charlie Elphicke: There is one thing that troubles me. The average income in my constituency is below £20,000 a year, so if one of my constituents gives to charity they are able to tag along the taxpayer to the tune of the basic rate. Is it not a basic unfairness that someone who pays tax at 50% is able to drag along the taxman and the public finances to double the amount that a constituent of mine on an ordinary income is able to? That seems an unfair aspect in the way the relief system has worked in recent years.
Stephen Williams: I welcome my hon. Friend’s addressing the fact that the tax system should be fair in how different individuals get relief for an activity that is to be encouraged. Perhaps the relief on pension contributions ought to be seen in the same light but I think that would be controversial among many of his colleagues. I suppose that the basic principle of gift aid relief, tax relief and what can be recovered by a charity relates to one’s net income and the money that one no longer has. It therefore has to be grossed up by the rate of tax that has already been taken off one’s income before one chose to give that money to someone else. That is the basic underlying logic.
Bob Stewart (Beckenham) (Con): My problem is that I do not quite understand how it works so perhaps my hon. Friend will correct me. If a philanthropist gives a huge amount of money to a charity, does that mean that he or she chooses who they give the money to and that the only loser is the Exchequer because it does not get tax on that? It is difficult but I rather like the fact that a philanthropist can give all that money and choose what happens to his or her money and that the Exchequer is the only loser. Am I wrong or is that his understanding?
Stephen Williams: I intended to give a speech on the Bill this evening rather than a broad-ranging tutorial on how the tax system works, but yes my hon. Friend is broadly correct. The basic premise of philanthropy is that one chooses of one’s own free will to whom one gives one’s money, but one gives from one’s net income and the money available—that is all one has to make that donation. The gift aid system therefore works so that the tax that has been deducted from that income already is put back in place and the charity receives that benefit.
I wish to make a second suggestion about how this restriction could be addressed. Perhaps a better way of looking at it would be to exempt large gifts to certain institutions such as universities. My right hon. Friend the Business Secretary has rightly expressed concern about the effect on the alumni fundraising programmes of our universities. The Russell group universities are particularly active in raising funds from members of their alumni such as myself, although I do not think I would be caught by these provisions. Gifts to other institutions such as Cancer Research UK and national institutions and museums such as the National Gallery could also be exempted. Perhaps we need to look again at the Charities Act 2006 and the public benefit test to see which activities and donations are generally of a philanthropic nature and which may fall into the grey area. It may be an individual’s personal choice to donate to a particular cause but that cause might not be something of wider public benefit that deserves tax
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relief. Whatever system we come up with, whether it is what is proposed in a dry sense in the Finance Bill or one that takes on board the suggestions that I and others will no doubt make as the Bill progresses, it must support genuine philanthropic activity.
My final point is on the rather obscure clause 180, which it will probably take us some time to reach in Committee. It relates to controlled foreign companies and how the UK is changing the taxation basis for companies with activities abroad. The primary duty of the UK Government, and indeed of Members of the House of Commons, is to safeguard United Kingdom taxpayers, and we must always think about that whenever we debate these issues, but we also have a duty to make sure that our Government’s policies are joined up. At a time when despite decreases in budgets elsewhere we are increasing the budget of the Department for International Development, it would be perverse if DFID had to give developing countries more support because of the adverse effects of the tax changes we are making in this country. We cannot address all those aspects now, and we shall look at them again in Committee, but I hope we can find a way of measuring their effects and supporting overseas tax authorities more effectively to collect their tax liabilities so that they are not adversely affected by changes we are making to our basis for taxation.
I said that I wanted to make a short speech. We have long debates ahead of us over several days, both in the Chamber and in Committee. When the dust has settled on the Budget and it passes into the annals of history, despite everything that hon. Members have rightly mentioned today—whether pasties or caravans—I think it will be remembered for the huge increase in personal allowances that raised millions of people out of taxation and provided a broad cut in income tax for millions more. That is the radical measure in the Budget; it is something I am very proud of and it is why I shall support the Bill this evening.
8.42 pm
Nia Griffith (Llanelli) (Lab): I rise to say a few of the things I was unable to say just before the recess because my speech was limited to about three minutes. I shall make up for it this evening.
It is important to put the Budget in context. No Budget can be considered without the context in which it is to be carried out. My major concern is that it does not address the problems we are facing. Of course, we have a deficit and we need to reduce it, but we can do that only if we make money, and there seems to be no strategy to get the economy going. The Government do not even seem to know where to feed money into the economy, and seem to be wasting money by giving it away in the wrong places and not using it to do things that would stimulate the economy.
Let us look at what has happened to date. Since the emergency Budget of 2010, and subsequent measures, the Government have already planned to take a huge amount out of the economy, much of it from people on low or modest incomes—the very people who by necessity have immediate spending on the essentials of life simply to keep their families fed and warm. What seems to have happened in the Budget is that we are seeing
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money given away to those at the top end of the scale, and there is no guarantee at all about what they will do with their money. They could choose to do all manner of things with it and it may never come back into our economy. The money may go abroad or be stashed away somewhere, but it will not immediately feed back into the economy. The Budget proposals present a serious problem from an economic and a fairness point of view.
Bob Stewart: Does the hon. Lady agree that, from the point of view of fairness, it is a really good thing to increase the tax threshold for those people who pay little tax? That was well done in this Budget, and it will be better next year. Surely that will help the lowest-paid in our society.
Nia Griffith: The difficulty with raising the personal tax allowance is, first, that those on very low incomes—those who will have their disability living allowance or housing benefit cut—do not even pay tax. Secondly, those much higher up the scale will benefit from the increased personal allowance. It is often dual-income families, quite high up the scale, who benefit from the personal allowance being pushed up. It is a very expensive way of helping people who are in the position that the hon. Gentleman sets out.
Although people criticised the tax credit system, the whole point of it was that it maximised the amount of benefit that went to the people who really needed it. The irony is that when we were in government, we were often accused of introducing stealth taxes, but look at the amount of indirect taxation now. What people have supposedly been given back through the direct taxation system—that is, through their personal allowance—has already been taken off them through the 20% VAT rate. That is the type of “stealth tax”—the same goes for fuel and so forth—that people resent. They are actually saying that they are paying more tax than before. Even the increased personal allowance will not make up the difference.
The Government propose making a very expensive move that is not properly targeted, and that is worrying, because the money will not feed back into the economy as quickly as it would if it were targeted at those who really need it and would want to spend it straight away. The first problem is that the money is going to the wrong place.
Secondly, we seem to have no growth strategy at all. We are lucky that some of our manufacturers are able to export because they are selling to markets in countries where there are stimulus packages, or strategies to stimulate growth. The fact remains that if we were relying solely on the home market, our manufacturing would be in a dire condition.
With growth flatlining and unemployment rising, the Government, far from bringing the deficit down, are facing the fact that they will have to borrow an additional £150 billion simply to pay people who are out of work. What is the point of that, when we could be paying them to do constructive things such as build council houses or schools? Through employment in manufacturing, they could be learning skills that they could use later. That would keep the skills base going. One of the big problems when there is mass unemployment and a massive drop in the number of people in an industry, whether it is coal mining or building, is that we lose a generation of skills.
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People do not want to sit about doing nothing. The overwhelming majority of people whom I meet who cannot find a job are very frustrated at not being able to find work. They are looking for anything and everything. It is often older workers in their 50s and early 60s who particularly suffer. They feel that time and again, they turn up for an interview only to be told that they are too old and cannot be taken on. We want the opportunity for all people—young and old—to get back to work.
Let me give an example of the type of money being taken out of the economy, so that we can see the real problem. In Wales alone, some £6.3 billion will be taken out of the economy over the next three years. We are talking about a very small population of not even 3 million people. The money is coming directly out of the Welsh economy. It is coming from the VAT increase, the loss of jobs in the public sector, and, significantly, most of all, from cuts to the tax credit system and to a wide range of allowances, including the disability living allowance, housing benefit, and council tax benefit. It is coming from a whole range of moneys that were put in to help people who struggle to pay particular bills—people who really could not make ends meet without the money.
As was mentioned, many of the people affected by the housing benefit changes will either find themselves homeless or simply have to use money that they would normally use for food and heating to pay the rent.
Lyn Brown (West Ham) (Lab): Does my hon. Friend agree that part of the problem is that people in that situation have not realised that they are going to be short of money to pay their rent? As they try desperately to keep up with rent payments while their benefit payments are going down, they will find themselves in an awful position, facing debt and having to move home as well.
Nia Griffith: My hon. Friend is absolutely right. The frightening thing is that we have not seen anything yet. The cuts in the public sector jobs are just beginning to bite, but the cuts in the tax credit system and in the housing benefit system are loaded towards the next two or three years. The worst thing happening this year was the terrible cut in tax credits on 6 April, with some of the least well-off people losing £4,000 per year because they cannot get extra hours. We know perfectly well that getting extra hours is extremely difficult.
By contrast, our Chancellor lowered the number of hours from 30 to 27 at one point, after the 2008 economic crisis, in order to help people who could not claim working tax credit because they could not get enough hours. We made the reverse decision because we recognised that people were desperate for hours. I met many people who were desperate for any sort of work.
The Government’s policy is very damaging but, as my hon. Friend pointed out, the vast majority of cuts are still to come. The effect on Wales of the tax credit cuts is that £17 million went last year, £148 million will go next year, £188 million the following year, £219 million the following year and £222 million the year after that. Each year the savings are greater, and with every saving there is a bigger cut in people’s income. The same is happening with housing benefit and all the reforms to the universal credit that are coming in.
Those cuts represent a tragedy for each individual family, but more importantly for the whole economy, that is money being taken out of the economy. In
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other words, it is money that people do not have to spend and therefore money that is not circulating. That will have a devastating effect on our high streets where we are already seeing many well known retailers closing shops. We are lucky in Wales that we had a rescuer for Peacocks. My hon. Friend the Member for Pontypridd (Owen Smith) has its headquarters in his patch and it has been taken over. None the less, more than half the stores are closing, including two in my own town. That is just one example. I could list dozens of retailers, as I am sure all hon. Members could, in towns up and down the UK, each of which tells the same story: nobody has any money to spend.
It is vital that we consider which way round we should be working in order to get money back into the economy, rather than taking it out. We start with the situation in which money is being dragged out of the economy. What do we do to try and stimulate the economy? We could create jobs. One of the things that Labour suggested is a repeat of the bankers’ bonus tax. We could use the money to create jobs for young people and to stimulate the housing industry and other building projects, such as schools or roads. If we did that, we would be repeating a tax which raised a lot more than this Government seem to be prepared to raise from their banker friends. Their present tax proposals would raise a limited amount from the bankers. Believe me, on the doorsteps people say that they still want to see the banks paying their fair share to put right the problems that they put us into in the first place.
We are lucky in Wales that we have a Labour Welsh Government. Welsh Government Ministers are implementing policies specifically to create jobs. We have spoken about creating jobs through a bankers’ bonus tax. The Welsh Government are creating 4,000 jobs with the limited finances that they have. It is specifically a young person’s jobs programme, with an emphasis on the private sector because we recognise that a much greater emphasis on the private sector is needed. We recognise that we are too dependent on the public sector.
Anne Marie Morris: May I take it, therefore, that the hon. Lady welcomes the new scheme in this Budget that will enable young people to apply for loans to start up businesses, in the same way as they can to go to university?
Nia Griffith: I certainly applaud measures to give young people the opportunity to take out loans to start up businesses, but even people with immense experience are finding it incredibly difficult to do that. There is just not the right climate at the moment to start a business. I would like to see more stimulus for the economy so that people who want to establish start-ups have a viable chance of making a success of them. At the moment, it is terribly difficult for anybody to sell anything to anyone or to persuade anyone to part with their money, which is the essence of getting a business going.
In Wales, we are trying to create jobs for young people; we are also investing money in infrastructure projects, again within the limitations of the Welsh budget. The Welsh Minister for Business, Enterprise, Technology and Science is providing grants and loans to companies to help them to expand and get their businesses going, because we are having so much difficulty with the banks. For example, in my constituency, Tallent Automotive
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has received money to keep workers in work, which people are very pleased about, and EBS Automation, a very enterprising engineering firm, has received money to expand, which means new jobs for young people in a high-skilled field. Those are the sorts of programme that I would like to see from the UK Government. What the Welsh Government can do affects only a small part of the economy in Wales. I would like to see the same kind of stimulus across the UK. First and foremost, my concern is about the lack of a coherent growth strategy.
Consumer confidence remains low. Many people fear that they may lose their job or have their hours cut. People have been hit hard by rising prices, which have been compounded by the VAT rise. Obviously, people on low and modest incomes have little spare income to put by, so their money goes straight back into the local economy. That contrasts with the money given away to millionaires at the top, who do not have to do anything with it immediately and do not know what they will do with it. They know that there is no benefit to them from putting it back into the local economy.
Mr Stewart Jackson (Peterborough) (Con): What does the hon. Lady say to the 810,000 people in the eastern region who are better off because their tax allowance has been altered? Those are low-paid working people who have had a stimulus and are spending the money locally as a result of the measures in the Budget.
Nia Griffith: If the hon. Gentleman had been listening earlier, he would have heard me explain that those people have already lost that money through the VAT increase. That is a stealth tax and a regressive tax, which always affects the least well-off the most. Many of the people who will get a little more in their pay packet because they will pay a little less tax when the personal allowance goes up will find that because of other taxes that have been implemented, they have lost that money already. Sadly, those people will not do so well.
The personal allowance helps people nearly all the way up the income scale, particularly those in two-income families. Frankly, although it is an expensive measure, it is not a well targeted one. As I mentioned, I would have liked to keep the tax credits system, which helped those who really needed it and took account of people’s different circumstances because it was based on the household income.
There is nothing to incentivise people to put their money back into the local economy and nothing to encourage people to unlock their savings and help the economy. We had the car scrappage scheme, so that people who were planning to buy a car that would last them for the next 10 or 12 years would bring the purchase forward by a year or two to take part in the scheme. We did the same thing with the replacement of boilers. Those schemes were introduced specifically to get the economy going. What have this Government done? They have thrown out of the window the one such scheme that they did have, which was the solar panels scheme, under which people were unlocking £10,000, £15,000 or £20,000 of their savings and spending it immediately in the local economy. Even if the panels were not made locally, all the fitting work to install the solar panels was done by skilled plumbers and craftsmen, so the money went directly into the local economy.
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The Government completely messed that scheme up and destroyed the industry’s confidence by incompetently changing the rules before the consultation was finished. They did not scale the scheme down in a sensible way, as the industry had asked. People in the industry accepted that the tariff would change over time, but they could not stomach being treated like idiots. The Government just said, “We’re going to change all this,” even though people had invested a lot of money. Some people had spent £3,000 on a course learning how to convert from being an ordinary central heating plumber to a solar panel installer. Some firms had expanded for the purpose, and firms in my constituency are laying people off because of the ridiculous changes.
What other scheme do the Government have in mind to get people to unlock their savings for an excellent investment that is environmentally friendly and provides local jobs? We have not seen such a scheme in the Budget. We have made some suggestions, but it seems that the Chancellor has ignored them. For example, we suggested a cut in VAT on repairs and improvements to houses. With the construction industry on its knees, that would have enabled plumbers, carpenters, electricians, plasterers and so on to find extra work, and people would have been encouraged to take on home improvements. What did the Chancellor do? The exact reverse. He slapped additional VAT on alterations to listed buildings.
Mr George Howarth: I fully support my hon. Friend’s point about a cut in VAT on home repairs. Does she accept that because of the high level of VAT, many repairs are now being undertaken in the black economy? If we could bring VAT down to a level that people could afford, that might have a positive effect on revenue.
Nia Griffith: That is extremely worrying, because there is not much point in having VAT on anything if it is not collected. Groups in my constituency that want to do up listed buildings, such the Cwrt farm project, with which I have been involved, and the Llanelli Railway Goods Shed Trust, which I chair, care for all manner of buildings in the town. The fact that they will have to pay much more VAT means that they will spend the same amount of money—the amount that they have raised, or that individuals have available to give them—but have less work done. Less of that money will be spent on wages for local people, so less money will be circulating in the local economy. Rather than finding ways of stimulating the amount of work being done, the Government seem to be trying to close everything down and provide fewer and fewer opportunities for anybody to make money.
Practically everywhere I have gone in Llanelli over the past four weeks, I have met people struck by the fact that pensioners are being punished and millionaires are getting away with a tax break. That has incensed everybody from all walks of life.
Charlie Elphicke: Can the hon. Lady tell the House exactly how many pensioners in her constituency who earn more than £10,000 a year will be affected?
Nia Griffith: I can certainly tell the hon. Gentleman that over the whole country, 4.4 million pensioners who earn between £10,000 and £29,000 will be affected, including a huge number in my constituency.
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People are incensed—not just pensioners but their friends and relatives. They say, “This is how it’s been since the 1920s, and the change came from nowhere.” Older people like to plan; they tend to be careful and like to know what will happen. In a Budget that was leaked and leaked, this change was just pulled out of a hat like some dreadful spotted rabbit. People were appalled, given all the emphasis that had been put on other measures that might be in the Budget.
Pensioners have to face that on top of losing their winter fuel allowance, which was a universal benefit and very useful for all manner of pensioners. We are talking about pensioners who have put by a little money and made some provision for their old age. They feel aggrieved because they have tried to do the right thing. They have been hit by the VAT rises. They have been lucky that it has been a mild winter this year, but they all tell me, “Look at my electricity and gas bills.” What are the Government doing to control energy prices? Absolutely nothing. Prices have gone through the roof even though the weather has been milder than last year, and pensioners are struggling to pay those bills. Then there is the fiasco at the petrol pumps. People had already been hit by mid-March with very high petrol and diesel prices, when suddenly the Government inflamed the situation by telling everyone to rush out and panic buy. Of course, everyone now faces even higher, inflated prices at the petrol pump.
Pensioners have been hit time and again. For those on a fixed income when interest rates are low, the rampant inflation that we have experienced is particularly hurtful. Again, pensioners have been badly affected. All in all, there is a feeling that the Budget takes from the wrong people. It takes from people who spend their money locally, tend to be careful with their money, and have saved. They spend a certain amount on their grandchildren, but they will have less money to do that—all to fund the cut in the 50p tax rate for those who earn more than £150,000. For some people who earn millions, it will mean that they are not just hundreds but thousands and tens of thousands of pounds better off. That is extremely unfair.
The people I meet ask why that is happening and why we are not all in it together. They ask why the 50p rate is not kept so that there is a fairer distribution of taxes across society.
Mr Stewart Jackson: I must remind the hon. Lady about the deficit. The previous Labour Government ran a structural and a cyclical deficit before the financial crisis. Between 2000 and 2010, they increased public expenditure in real terms by 53%, yet managed to double youth unemployment. The hon. Lady extols the virtue of Keynesian economics and growth management, but we have to deal with the deficit, and that is why we must make such difficult decisions.
Nia Griffith: The hon. Gentleman knows perfectly well that, until 2008, we were reducing the national debt. Obviously, when a world crisis occurs, a stimulus must be provided. By the time we left government in 2010, the economy was beginning to pick up. It has flatlined since. We gave the Government the opportunity on a plate to try to get things going, but they squandered it and have put us back behind the starting posts. We are now in a truly difficult situation because getting things going again will be much harder.
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The Budget has the wrong priorities. We do not seem to be getting the economy going and we are not putting money where it needs to go. Instead, we seem to be giving it away frivolously and stupidly. The money that is used for tax cuts for the wealthy should be put into stimulating the economy so that everybody can have a share of the wealth.
9.8 pm
Charlie Elphicke (Dover) (Con): It is a pleasure to follow the detailed and forensic speech of the hon. Member for Llanelli (Nia Griffith). However, unlike her, I support the Finance Bill, and hope that it will go further, particularly on business and the reductions in corporation tax. By 2014, corporation tax will be 22%—the lowest rate in the G7. I strongly believe that if the rate is cut, the take is increased. However, in cutting the rate, we also need to take firm action to stop tax avoidance and to have a new tax compact. A low rate means great responsibility, and a greater responsibility to pay the tax that is due. We need business to pay a fair share of taxes, especially multinationals that are located not here in the UK, but overseas. For too many years, they have failed to pay their fair share.
Let me give some numbers. In 1997-98, income tax raised £77 billion a year; in 2008-09, it raised £153 billion a year. In other words, income tax receipts doubled. Let us look at corporation tax. In 1997-98, corporation tax raised £30 billion; in 2008-09, it raised £43 billion, an increase of just a third. How can it be that income tax receipts doubled in the same period that corporation tax receipts went up by only a third? The rate during the period was largely unchanged. The answer is that the Labour Government allowed massive, egregious and unacceptable tax avoidance for a decade on an industrial scale. That is a disgusting record in government.
There was a massive change during that period. With the rise of the internet, tax bases were threatened, but the Labour Government were asleep at the wheel and failed to reform our tax system, and to understand and take into account the new technologies and the new threats to our tax bases.
Let us look at this massive and inexcusable tax avoidance by multinationals. Who am I talking about? I shall give a few examples. In the last financial year, it is estimated that Apple had earnings of about £6 billion in the UK. Apple has an operating margin of some 33%, meaning that profit in the UK would be roughly £2 billion. Tax attributable to UK profits should be roughly £500 million, but how much tax did Apple pay? It paid £10 million—not £500 million. That is unacceptable.
Let us take the case of Amazon. In 2010, Amazon had revenues attributable to the UK of £2.8 billion. It is estimated that it should have paid some £35 million in tax on profits of some £125 million. How much tax did Amazon pay? The answer is nothing.
Bob Stewart: So we are going to sort this, are we? Will it be sorted as soon as possible so that it does not happen again? We must ensure that it does not happen again.
Charlie Elphicke: I am grateful to my hon. Friend for anticipating the next part of my speech, but let me first give some more examples.
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Google revenues in the UK were £2.15 billion in 2010. Estimated UK profit was £700 million. How much tax should have been paid? Google should have paid around £180 million, but how much did it pay? It declared a loss of £22 million.
Jacob Rees-Mogg: Did those companies pay the tax required by law?
Charlie Elphicke: My hon. Friend makes a fair point. The companies would answer that they did pay the tax required by law, but my response is like the one given by their lordships in, I believe, the Aberdeen case some years ago. Their lordships said that a man is under no obligation to allow the taxman to put a greater shovel in his stores than he must by law, but my argument is that tax law should allow the taxman to put his shovel into stores so that people pay a fair and just share of taxation.
Jacob Rees-Mogg: Can we be clear that the problem is the law and not the avoidance—the avoidance is legal, but the law may be wrong?
Charlie Elphicke: The law requires change. The avoidance might be legal, but HMRC is understood to be investigating a number of those companies. Because of taxpayer confidentiality, we will not know for sure until such time as a case comes before a court.
Let us take the case of eBay. Tax of some £50 million should have been paid on UK profits before avoidance, but eBay actually paid £3.4 million. Facebook should have paid £14 million, but actually paid £400,000. That level of avoidance is unacceptable. This poisoned legacy—the total failure to reform our tax system—left to us by the previous Labour Government is unacceptable. I might, if I am generous, put it down to their obsession with pursuing the prawn cocktail circuit for so many years, in the fear that if they took on business and ensured that it paid its fair share of tax, they would be less friendly with business and have less credibility.
Lorely Burt: I totally agree with every word that the hon. Gentleman has said so far. Does he share my concern that companies operating in developing countries should consider how they pay tax through transfer payments? Developing countries pay more—suffer worse—through not getting those payments from companies that extract their wealth than we get from our ability to tax.
Charlie Elphicke: I thank my hon. Friend for her point. My point, in this case, is that we should widen the anti-avoidance measures in the Bill for our own UK territory to ensure that taxes are paid on trading profits made here. I am not making a case for an extension by proxy of the UK’s substantial international aid budget, which is 0.7% of gross domestic product. If one wants to make the case that it should be more than 0.7%, as ActionAid does, I am sure that they will make it, but I do not want to focus on that issue. I am much more interested in securing our own tax base so that we can get our deficit down by widening the tax avoidance measures in the Bill and extending them to a wider and greater reform.
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Owen Smith: I am following the hon. Gentleman’s argument with great interest. Will he confirm whether he plans to vote with his Government on the controlled foreign companies changes that will give a reduction of about £1 billion a year to UK-based multinationals?
Charlie Elphicke: The hon. Gentleman will know, first, that that means that we will get more tax in the UK and, secondly, that we already have a 0.7% commitment to the international aid budget. If he wants to pledge—a spending commitment from Labour of £1 billion or so—to extend that commitment, let him do so. I am sure that the shadow Chancellor would be fascinated.
Charlie Elphicke: Is the hon. Gentleman making that commitment—yes or no?
Owen Smith: No, I am explaining to the hon. Gentleman that the Finance Bill, supported by the Chancellor, contains a measure on changes to the controlled foreign companies legislation that will reduce the revenues to the Exchequer by £1 billion per year—companies in the UK avoiding tax. Is he in favour of that?
Charlie Elphicke: Aid charities have made the case that corporations headquartered in the UK should be paying more tax overseas. That is not our job. Our job is to secure our own tax base in the UK. That is what I want to focus on, and it is what the previous Government totally failed to do over many, many years. If we put a stop to it and raise the due amount of tax from companies not resident in the UK with anti-avoidance measures and proper tax reform, we could have lower fuel duties for hard-pressed families and a lower basic rate of tax—and goodness knows we could even pay down some more of the debt that the previous Government shockingly, disgracefully saddled this country with.
I hope that the anti-avoidance measures in the Bill will be widened in the following way: the first principle is that business tax rates should be low, simple and attractive. Britain should be open for business, but open for business on a level playing field for national and international companies. Businesses should have a social responsibility to pay a fair share of tax. Some object to the idea of morality in the tax system, but this is an issue of corporate social responsibility. Tax avoidance should be dealt with firmly and rules changed to stop the avoidance. I shall come to specific measures in a moment.
For many years, the European Union has consistently and systematically sought to undermine our tax base in its pursuit of a common corporation tax base. We need the EU to support member states in protecting tax revenues rather than undermining them with so-called anti-discrimination rules.
Barry Gardiner (Brent North) (Lab): Could the hon. Gentleman enlighten the House as to his view of the patent box? The Chancellor first mentioned it in last year’s Budget—I think—although it was Lord Mandelson who introduced the concept in the first place.
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Charlie Elphicke: It is common ground on both sides of the House to support the patent box; in fact, I seem to recall the Labour party scrabbling to take the credit for the Chancellor’s implementing it.
Let me come to the next part of my list. Every multinational should be required to publish an effective rate of tax paid on UK revenues—from UK sources, from UK territory and from its UK trade. No Government contract should be awarded to any company that does not pay a fair share of tax in the UK. We need to get tough on multinationals that have taken us on a free ride by using conduits such as Ireland, Luxembourg, the Netherlands or other European jurisdictions for too long. As a former tax lawyer—a poacher turned gamekeeper —I hope that the House will allow me to put forward some proposals for how to change things. The first is to reform the branch tax rules. Amazon will claim not to be here at all—“We’re in Luxembourg,” it will say—yet it fulfils its obligations here and trades here. The truth is that Amazon does business here. In the internet age, we need to widen the branch tax rules to deem a branch for UK-source profits to be in a UK territory. I hope that Treasury Ministers will consider that.
Then let us look at restrictions on deductions such as interest, royalties or management charges—all sorts of costs that are loaded on to companies and declared as deductible items, but then end up mysteriously in Ireland, Luxembourg or one of these other countries. That method is routinely used to depress UK profits. We should pursue substance over form. We should employ “look-through” rules, so that no deduction should be allowed unless tax is actually paid somewhere else. Companies will claim, “Oh, we’re using the Luxembourg tax treaty,” but we have to ask whether the tax is actually paid—that is, is it repatriated to the states where it is actually paid? Invariably, the answer is no. We need far stronger and tougher “follow-through” rules, to follow through the money chain and see whether genuine deductions have been made or whether companies are just using a money box offshore to rip off not just our system, but the states in their home jurisdictions. Often, they do just that.
Next, we should look at how the rules on personal service companies can be tightened up. As I said in an intervention on my hon. Friend the Member for Gainsborough (Mr Leigh), politicians should be setting an example. Indeed, there are too many Members of Parliament with personal service companies—lately on the Opposition Benches, I have to say—who have not been behaving properly, but who should behave properly and pay a fair share of tax. When Ken Livingstone is not weeping crocodile tears, he is busy talking about how everyone else should pay tax but him. That is unacceptable. We need some truth, some reality and some leadership in our tax system. We should not just lecture everyone else, but act differently ourselves. We have had too much acting and too many actors; we need more reality, more substance, and more honesty and straighforwardness with the electorate.
We also need to reform the European Union or renegotiate the procurement and discrimination rules, so that we can properly secure our tax base. The way the European Union has systematically colluded with multinationals to undermine our tax base—costing us even more money than we already have to give it every year, in a big fat cheque that we write out for membership of that organisation—is nothing short of a scandal. We
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need the European Union to be our partner in ensuring that all companies pay a fair share of tax, not just in the UK but across the EU. We need the European Union to step up to the plate in these difficult times and fulfil its responsibility to help re-secure national tax bases—rather than undermining them—not just for our nation, but for all nations across Europe, which are pretty much all running deficits.
Finally, the principle that I am following is that business should pay a fair share of tax. This is about social justice as much as change and reform of the law. The fundamental deal in the tax compact is this: “A lower rate of corporation tax and lower business taxes, but no playing the system. Take corporate social responsibility to include taxation. Pay up and help us grow the economy and repair our deficit.”
9.24 pm
Mrs Anne McGuire (Stirling) (Lab): It is a pleasure to follow the hon. Member for Dover (Charlie Elphicke). I am always interested to hear people say that they are a poacher turned gamekeeper, because I always want to know what they did when they were a poacher. The hon. Gentleman laudably admitted that he was a tax lawyer, and it would be interesting to know whether, in giving people professional advice, he ever recommended that they set up tax-efficient systems for managing their taxes. I point out to him that, in more than 15 years in this House, I never once heard a Conservative Member ask the Labour Government to do anything about tax avoidance rules. There is too much piety among Government Members as they try to suggest that we wilfully ignored the matter of tax avoidance. I hope the hon. Gentleman will reflect on what his party was doing during those 15 years, while he was being a poacher, not a gamekeeper.
Barry Gardiner: If my right hon. Friend looks at all the Budget measures put through by the Labour Government, she will see that the average figure achieved by each measure to clamp down on tax avoidance was £1.8 billion. The most that this Government have managed is £0.8 billion.
Mrs McGuire: My hon. Friend the Member for Leeds West (Rachel Reeves) dealt ably with that point earlier today, and I am delighted that my hon. Friend the Member for Brent North (Barry Gardiner) has echoed her comments.
Lorely Burt: Will the right hon. Lady give way?
Mrs McGuire: I want to make some progress.
The test of a Budget is not the easy headlines on the day of the announcements, but how quickly and radically it unravels in the days and weeks after the initial statement. In the case of the 2012 Budget, we did not have to wait long. It was full of political symbolism but it had little substance. The Chancellor said:
“We will…consult on the introduction of a large annual charge on…£2 million residential properties”.—[Official Report, 21 March 2012; Vol. 542, c. 804.]
That was no doubt a sop to the Business Secretary, but the reality is that only 3,000 houses a year, at most, will be covered by the charge, and it will be easy to avoid.
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A property valued at £2,000,010 might be made available at a bargain price of £1,999,999.99. A gentleman such as the hon. Member for Dover could drive a coach and horses through such an arrangement. It was a policy that sounded good on the day but it will be no more than warm words when it comes to raising revenue or catching those who seek to avoid paying tax.
Mark Reckless (Rochester and Strood) (Con): The right hon. Lady accuses Conservative Members of not saying anything about tax avoidance, yet I have been going on about the issue of high-value houses for several years. My right hon. Friend the Chancellor also mentioned it before the election. Yes, perhaps we should go further than the figure of £2 million and, yes, perhaps the measures on capital gains should go further than just covering companies, but the Labour Government did absolutely nothing on those issues.
Mrs McGuire: The problem is that the measure was paraded as a bit of camouflage for the reduction in tax for those earning more than £150,000 a year. On the one hand, the Chancellor was reducing tax for the wealthiest, but he was also going to attempt to clobber them. This policy did not come from the heart; it was part of the camouflage being used in the Budget.
There has also been a general sleight of hand over taxation. The Chancellor recently stated that he was “shocked” by how little the wealthy paid in taxes, yet this Budget gives a tax cut to the 14,000 people who earn £1 million a year or more. That will give them about £40,000 each year, while the average family with children earning just £20,000 will lose £253 a year from this April. That is on top of the VAT rise, which is costing the average family £450 a year. Furthermore, another 678,000 people of all ages who are currently paying the basic rate of income tax might feel pretty aggrieved when they wake up to discover that they have been catapulted into the 40p income tax rate, not because they are earning massively more but because the Chancellor has not raised the threshold in line with inflation—[ Interruption. ]I do not know whether I am interrupting a kind of confab of the horizontal speaking to the vertical on the other side of the Chamber, but I will continue, having drawn attention to the significant noise coming from the other side.
The Treasury forecasts suggest that there will be 5.7 million higher rate taxpayers by the end of this Parliament. That is nearly double the 3.1 million at the time of the last general election and treble the number when Labour came to power in 1997. Of course the whole increase in personal allowance that has been paraded here today is outweighed by the VAT rises, the changes to tax credits and the higher petrol duties. As my hon. Friend the shadow Chief Secretary demonstrated earlier, the average family with children will be worse off—not on the basis of our figures, but on the basis of those of the Institute for Fiscal Studies. The Chief Secretary’s answer to my hon. Friend was both evasive and complacent.
According to Citizens Advice, poorer families that get housing and council tax benefits will be just £33 a year better off when the tax threshold rises because as their income goes up, their benefits go down. For every
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person eligible to pay tax who also receives housing or council tax benefit, the Department for Work and Pensions will claw back some £187 of the £220 notional annual gain. The Citizens Advice chief executive, Gillian Guy, said:
“Raising the personal tax allowance is an empty gesture for struggling families on low wages who get housing and council tax benefits. For these families, the weekly gain is less than the price of a loaf of bread”.
In the name of simplification, the Chancellor launched his £3 billion tax raid on pensioners over the next four years. The freeze in the personal allowance for pensioners will see 4.4 million pensioners who pay income tax losing an average of £83 a year from next April. People who turn 65 after next year will, of course, lose most—up to £322 a year. The additional age allowance was introduced in the 1920s in recognition of the fact that those who have retired do not have the same capacity to increase their income. It is to the undying shame of the current Chief Secretary—a man for whom I once had some respect when he was a Liberal spokesperson on welfare issues—that he came forward today to try to justify taking money from those pensioners who have no other means of increasing their income, telling them that he was doing it in the interest of simplification.
Charlie Elphicke: Will the right hon. Lady give way?
Mrs McGuire: I would love to give way to the hon. Gentleman.
Charlie Elphicke: I do hope the right hon. Lady will forgive me for breaking into her ad hominem attacks on just about every Government Member, but I point out to her that no pensioner loses any money whatever under these proposals because of the increase in the basic state pension that the Government have put in place.
Mrs McGuire: Frankly, the increase in the state pension came about because inflation was at 5.2% in September and the Government could not get out of it. I do not know whether the hon. Gentleman worked for Grant Thornton when he was a tax accountant, but Mike Warburton of Grant Thornton said:
“The Chancellor is allowing age allowances to wither on the vine. He is effectively phasing them out but there is always a price to pay for simplicity.”
The burden will fall on pensioners with below average incomes. Those are not our words, but those of an eminent firm of chartered accountants.
Charlie Elphicke: Will the right hon. Lady give way?
Mrs McGuire: No, I have been generous enough with the hon. Gentleman.
Also hidden in the statement was the announcement that there would be a further cut in the DWP’s welfare budget. I do not know how many people heard the Chancellor slide over the fact that there was going to be a £10 billion cut in the DWP budget. He did not say where it was coming from; it was left hanging in the air. He made a passing reference to his colleague, the Secretary of State for Work and Pensions, and to what a wonderful job he would do in cutting £10 billion. Where is that £10 billion going to come from? Will Ministers cut the
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carer’s allowance? Will they make further reductions in housing benefit for those in work as well as those who are out of work? Will there be a further erosion of support for disabled people, including disabled children? Will the Treasury freeze state pensions? Ten billion pounds will not come out of thin air. It will have to be paid for, but so far we have been given no details, or even a broad-brush indication of where it will come from.
My hon. Friend the Member for Llanelli (Nia Griffith) made some valuable points about the stimulation of growth. It is worth comparing what the present Government have done with some of the steps taken by our Government when we were faced with a recession—a global recession, not a recession manufactured in this country. [Interruption.] Did I hear a voice from somewhere?
Lorely Burt: I was reflecting, perhaps a little more vocally than I should have from a sedentary position, on the suggestion that the recession was not of the right hon. Lady’s making, and was not fuelled by debt or anything else of that kind. She seemed to be entirely confident that her party had played no part in the creation of the circumstances in which we now find ourselves, although the former Chief Secretary left the message “There is no money.”
Mrs McGuire: I almost wish that I had not heard the comment that the hon. Lady made from a sedentary position. What I said was that it was a global recession that we faced in 2007-08, not—as the Government would have us believe—a recession that had been manufactured in this country. It spread across the whole of the western world, and I hope that the hon. Lady will reflect on her comments.
As my hon. Friend the Member for Llanelli pointed out, during that dire time the car industry was helped by the scrappage scheme, there were changes in stamp duty and reductions in VAT, there was a future jobs fund, payment of tax was deferred for small businesses, and there were changes in mortgage support for those who became unemployed. The purpose of all that was to ensure that people stayed in their jobs, or, if they faced unemployment, were given the support that would enable them to obtain other jobs. This, however, was a Budget of ill-considered consequences. We have a granny tax that will make some pensioners poorer. We have a charities tax that is so badly thought out that Conservative Back Benchers are holding up their hands in horror. We now have a panicked consultation. We have tax proposals that may ruin the caravan industry, which involves manufacturers in the north of England. Hairdressers face paying VAT on their chairs that they hire for their salons. We have tax proposals that cannot be implemented.
One of the Treasury Ministers must explain to me what an “ambient temperature” is when it comes to assessing the imposition of VAT on savouries, which is almost impossible to implement. Is a pasty or a steak bake or a pie cooling down after it has been baked liable for VAT, or is one warmed up so that it can be sold also liable for VAT? That is a nonsense of a policy, and I hope that Ministers will reflect on it as well.
The Budget on 21 March was a weak attempt to highlight the coalition’s mantra that “we’re all in this together”, but has shown that nothing could be further from the truth. It was the Budget of a complacent and cynical Chancellor who feels that he has nothing more
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to do to stimulate growth. A Budget worked out by an out-of-touch Chancellor is now being finessed daily as it unravels in the light of scrutiny and analysis. In other words, this Budget was a lost opportunity.
9.39 pm
Jacob Rees-Mogg (North East Somerset) (Con): It is a great pleasure to have this opportunity to speak in favour of the Finance Bill, which shows the wisdom of the Government on the key point of reducing the deficit. That was what the Government came into office to do. They set out a course to do that, and they are following it bravely and boldly. It is the essential part of the policy the Government are pursuing.
Nia Griffith: Why, therefore, has £150 billion had to be borrowed, and how can the hon. Gentleman measure that as a success?
Jacob Rees-Mogg: Very simply, because £150 billion extra has not got to be borrowed. Forecasts of what may happen are fundamentally unreliable. In a large economy, no efforts to forecast a small percentage of growth that there may or may not be have been successful. In the history of economic forecasts both in this country and across the world, there is one thing of which we can always be certain: that they are wrong and that the outcome will be different. This extra £150 billion that is proposed is based on a theoretical level of growth that was never going to be achieved, and that was never able to be achieved.
Owen Smith: Does the hon. Gentleman therefore agree that it is equally uncertain that the revenue to be lost as a result of the change in the 50p rate will be just £100 million, as his Treasury colleagues contend?
Jacob Rees-Mogg: I am grateful to the hon. Gentleman for making that point, because I think the reduction from 50p to 45p will, in fact, raise revenue. I think the estimates are far too unambitious and that, actually, there will be an opportunity for the Government to go further in future. I am extremely encouraged that the Treasury is producing reports on what is the best level of higher rate tax.
On that point, the Government have yet again been right, brave and bold. It is, of course, marginally politically embarrassing in an age of austerity, when we are all in it together, to cut the higher rate of tax, but it is right to do so if that raises more tax for the country—it is right if that allows the Government to spend on the priorities that both they and the British people have. Yes, there may be unpleasant headlines and we may be mobbed up by the hon. Ladies and hon. Gentlemen on the Opposition Benches, but it was the right thing to do. Time will show that the 45p rate will end up raising more revenue, because rich people can leave the country and not pay tax, can decline drawing dividends from their companies and not pay tax, and can postpone taking revenue and not pay tax. It has been shown time and again that reducing rates results in higher rates of total income. The Government were right to introduce this measure, therefore.
Matthew Hancock (West Suffolk) (Con):
Does my hon. Friend agree that those who do not look at these dynamic effects of tax changes will always over-estimate
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the amount that a tax rise will generate, and therefore will always leave the nation’s finances in a mess, as amply demonstrated by the Labour party’s record?
Jacob Rees-Mogg: My hon. Friend is absolutely spot-on, because every single socialist Government this country has ever had have always left the country in a financial mess, as they believe that by squeezing the rich until the pips squeak they can get more revenue, when history shows that they cannot.
The success of the Government’s fiscal plan is shown day in, day out by the bond market. Interest rates on our 10-year gilts are just about 2%. When we look abroad—when we look to the continent—we see how quickly those rates can deteriorate for countries in which the markets lose confidence. The greatest tribute to this Government’s economic policy is what has been happening in the bond market.
We must thank our Liberal friends for another great measure in this Finance Bill: the raising of thresholds. That has, quite rightly, been adopted by Conservatives. It is sensible that people should not pay tax when they are on benefits. The higher the threshold can be raised so that we avoid this merry-go-round of tax and benefits, the better.
Claire Perry (Devizes) (Con): I thank my hon. Friend for making that point about thresholds. Does he share my pleasure in the fact that the majority of people benefiting from that threshold being raised are women, many of them working part time?
Jacob Rees-Mogg: That is a tremendously important point, because we have heard some complaints that couples, where both are working, are particular beneficiaries. But I think that that is great; I think that where the husband and wife are both going out to work, one of them is a relatively low earner and the whole family income benefits, that is good for men, women and probably their children, too. So this is absolutely the right policy.
In addition, we have cut corporation tax, a pro-business policy. We saw how well Ireland did by cutting corporation tax—[[Hon. Members: “It went bust!”] The reason Ireland went bust was not its low corporation tax. The reason Ireland went bust was because it joined the euro, a policy of which a lot of Labour Members were all in favour. Ireland’s corporation tax was behind it becoming a very successful economy and attracting companies to go there to do business. We want to do the same and I am glad that the Government have so much ambition to continue reducing corporation tax, to the benefit of the nation.
When we look at these great and bold things that have been done—getting the deficit under control, lowering the top rate of tax, raising thresholds and lowering corporation tax—we see that big, important measures have been taken. Yet what is the Budget criticised for? What is the Finance Bill criticised for? The answer is pasties. I have to say that the VAT levels charged are required to raise revenue and they include all sorts of funny things and they exclude some odd ones, too. Many of us will remember all the fuss there was about
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whether Jaffa cakes were cakes or biscuits, and whether, as a cake, they were exempt or whether, as a biscuit, they had VAT paid on them.
Ian Mearns (Gateshead) (Lab): I wonder whether the hon. Gentleman would mind reflecting on the situation of the Greggs Foundation, in the north-east of England, which puts significant money, through charitable donations, into youth services and children’s breakfast clubs. If the pasty tax hits home and Greggs’ profits fall—we have already seen a significant reduction in the share price—those charitable donations may dry up. Is that a concern of his?
Jacob Rees-Mogg: That is rather contorted logic. Saying that one aspect of the activities of a big and thriving business has a slightly higher rate of tax and so the business will suddenly not be able to give any money to charity is a leap in logic so great that it can be ignored in this case. However, I did wish to discuss the point about charitable giving, because that is one of the biggest sticks that has been used to bash this Finance Bill and the Budget with.
Charlie Elphicke: Does my hon. Friend agree that it is odd that fish and chips should be subject to VAT but pasties should not? The sausage and egg McMuffin that I sometimes enjoy is subject to VAT, as is my Domino’s pizza and the Indian takeaway I enjoy from the Milaad Tandoori in Deal, but sausage rolls are not. Is that situation not unfair, as it subsidises pasties and sausage rolls?
Jacob Rees-Mogg: I agree with my hon. Friend that VAT is a tax of immense complexity. However, it is an essential tax for the revenue-raising that this country needs and it has to include in it things that all of us like and would rather not be taxed. Equally, it will include things that some of us do not like, do not particularly wish to eat and do not mind how heavily taxed they are. If I am put the question, I would choose a sausage roll over a pasty, but I know that others have different views.
I also want to mention briefly the freezing of the threshold about which the right hon. Member for Stirling (Mrs McGuire) spoke interestingly. Again, the Government were right. Because the big step is being taken to raise thresholds altogether, it makes absolute sense, at no cash cost to any current pensioner, to freeze this level and allow it to even out so that we have one threshold. Every time we have variance in tax levels, be they rates or thresholds, we simply employ more people at Her Majesty’s Revenue and Customs, we have a more expensive cost of collection and we fail to achieve the objective of simplicity across the tax system.
This has been a great Budget and I wish to finish by speaking briefly about this terrible question of tax avoidance. I agreed with my hon. Friend the Member for Dover (Charlie Elphicke) when he cited that notable judge with his phrase about allowing the taxman to take the biggest shovel. If people avoid tax, that is legal because we, as Parliament, have allowed them to do so. The following clauses in part 1 of the Bill allow legal tax avoidance: 13, 14, 15, 16, 19, 20, 38, 39, 40 and 44. All those clauses in the first 50 allow tax avoidance of which the Government approve. We will all approve of some of them, because they allow MPs £30,000 tax free
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when they leave Parliament, allow cars that must be made secure because people are at risk to be tax free and allow people in particular situations and circumstances to pay less tax than they would in normal circumstances. The enterprise initiatives under clauses 38, 39 and 40 allow investment that the Government want to encourage. Those are all examples of tax avoidance that is liked by the Government.
We have to be fair to taxpayers. We can only expect them to follow the law of the land as it is written—the black letter law of the land. We cannot expect taxpayers to look at their affairs and say that the Government might like them, if they are feeling kind, to pay more tax than they are being asked for. None of us has an obligation to do that and it is wrong and dangerous to elide tax avoidance and tax evasion.
Barry Gardiner: Does the hon. Gentleman therefore disagree with the Chancellor, who said on Budget day that he wanted the approach to be applied not simply according to the black letter of the law, as the hon. Gentleman puts it, but according to the spirit of the law?
Jacob Rees-Mogg: I do not believe that the law has a spirit; that is unduly philosophical for my view of tax law. Tax law is what Parliament passes and I have grave doubts about a general anti-avoidance principle. I do not think that we can reasonably expect people to pay tax on the basis of what Parliament might want, as they can only do it on the basis of what Parliament has passed into law. To undermine that is to undermine the rule of law on which we all depend, and it is fundamentally unjust to elide tax avoidance and tax evasion.
Although I know that I have unlimited time and that people are gathering for the excitement that the winding-up speeches hold in store, let me reiterate that this is a great Budget and a good Finance Bill. The criticisms have been fundamentally trivial but the basic point is that we will have—as Tories always have and as they always have had when they have come in after Labour Governments—sound money.
9.52 pm
Sheila Gilmore (Edinburgh East) (Lab): After that version of what the Budget holds, it is worth quoting another, as today’s editorial in The Times was not nearly as enthusiastic as the hon. Member for North East Somerset (Jacob Rees-Mogg). In its words:
“When the Budget speech is still leading the news three weeks after delivery, something has gone awry.”
It is rather strange, because in the beginning people thought that so much had been spun out to the press in advance that there could not be much controversy left. It all seemed to have been massaged and put out in advance, so people would not be too surprised. Three weeks after the Budget, however, as The Times says, something has gone awry. Clearly, that view is not shared by the hon. Gentleman, but it is widely held throughout this country. Behind all the jokes about pasties, granny tax, stamp duty and caravans, the biggest thing that has gone awry is the fact that there is very little in this Budget to help grow the economy. That is the serious part of all this.
This morning—I think it must have been on the “Today” programme—I heard the commentator say that the Government have handed over the responsibility
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for economic recovery to business. The problem is that the OBR does not expect business to step up to the plate any time soon, so it appears that nobody will be responsible for the recovery. This is what the OBR had to say in its March report:
“Relative to our November EFO”
“we have made a further downward revision to business investment, as we believe that non-financial companies’ balance sheets may be weaker than official statistics suggest. Set against this, we expect a boost to the level of business investment of 1 per cent from the corporation tax rate cut announced in the Budget.”
The reduction in the forecast for business investment for 2012-13 is 6.9% off the November forecast and the increase that is expected this year in business investment is only 0.7%, so it appears that business will not be stepping up to the plate.
We have heard a lot about corporation tax and Opposition Members have been accused of not being interested in that, but when one looks at the detail, one sees that the corporation tax cut that people have made so much of is expected to lead to an increase of only 1% in business investment over the whole forecast period. If a reduction in corporation tax is so important to the Government, it seems a rather modest step. In striving above all to create what he feels is a fiscally neutral Budget the Chancellor is constraining his Government’s apparent remedies to our economic situation. We have seen the same thing with the national loan guarantee scheme and the credit easing we were promised in November which was finally announced to be alive and kicking the day before the Budget. That is really an acknowledgement that previous measures to encourage business to invest have not worked.
What does the OBR say? It says:
“Under current funding market conditions, the Government guarantee on the first tranche should lead to lower funding costs and some additional net lending. The scale of the initial tranche is not large enough to have a material impact on our aggregate business investment forecast”.
“benefits associated with further tranches are less certain.”
Again, one of the tools that the Government say they have to aid economic recovery appears to be exceptionally modest, so it is not surprising that the OBR does not expect a recovery in growth to the historical average before 2014.
The rise of the tax threshold is something that the Liberal Democrats are very proud of. They waved their Order Papers frantically at the time of the Budget.
Sheila Gilmore:
And we heard a great deal about it from the hon. Member for Bristol West (Stephen Williams). I would be more interested in listening to their view on this if they acknowledged how many other measures have not helped many of the low-paid. Raising the tax threshold is not in itself a bad thing—[
Interruption
]—but when people have suffered other losses, the net effect is not what the hon. Member for Solihull (Lorely Burt) appears, from a sedentary position, to think it is. Someone who is now out of tax as a result of this year’s tax threshold increase will find that it is not worth as much to them as they might have thought because while they are gaining with one hand they are losing with the
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other. If they are entitled to housing benefit or council tax benefit, they will get less because of the changes in tax so the net effect will be that they receive less. Over the period since 2010, families in particular have taken a big hit with more than £500 a year being lost through changes in tax credit and other benefits. The hon. Member for Solihull laughs and perhaps she does not care about that because the tax threshold seems to be such an important mantra for her party but it is not enough if at the same time people are suffering losses. If we want to talk about the real position for families, particularly those with children, we have to look at the whole picture. Those who face the loss of tax credits this year know exactly what that means for their families. As I said earlier, I am very disappointed that the Government were willing to listen to some critics, and make changes for those on the higher rate of tax who are about to lose child benefit, but were not prepared to look at the much bigger working tax credit losses that will be suffered by people on much lower rates. If they were listening, they should have made the change for both, not simply for those on higher rates of tax.
We have heard a lot about tax simplification—indeed, it was the reason for the so-called granny tax—but it appeared to go out of the window when it came to child benefit changes for higher rate taxpayers. The Finance Bill will give us a complicated set of arrangements that will involve making decisions about whether two people are a couple, whether or not they are regarded as living together and when a relationship has sufficient permanency to affect the provisions. All those issues are extremely complicated and, as even some Government Members have said, they will involve employing more people to work them out. As we said, there will be administration costs.
When the changes were announced with a great flourish at the Tory conference, we pointed out the anomalies, difficulties and expense that would arise. I suspect that there will be further changes yet, because there is no point in pretending that the measure is not difficult.
On the higher tax rate issue, it was far too soon to jump to the conclusion that the 50p rate was not bringing in the revenues one might have hoped for. It was hardly given the opportunity to start. In effect, people on high incomes were using a form of blackmail on the rest of us: “If you put up taxes, we’ll find ways of avoiding them.” What did the Government do? They rolled over and said, “Oh all right then, we’ll lower the rate of tax.” If low-paid workers or people who lost their working tax credit when they could not find enough hours decided that sensible tax planning for them would be to stop work, because they would better off, they would be regarded as people who would rather stay at home watching daytime television than work hard. There is one rule for one set of people and one rule for another.
Tax avoidance should be tackled, but it is not a good sign when at the first whimper from higher rate taxpayers—the first effort to avoid the tax—the Government say, “Okay, we’ll change the tax rate for you.” That is what the Government stand for. It has been clear in this and previous Budgets that there is gross inequality in the way people are treated. People at the bottom who have been suffering from the changes in tax and benefits and are struggling to keep their heads above water find that
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even the new jobs supposedly created over the past two years—most of which were created in 2010—are part time and do not give them a higher standard of living. I urge Government Members to rethink their support for the Budget and to vote with us tonight.