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Clause 1 ordered to stand part of the Bill.

Yvette Cooper (Normanton, Pontefract and Castleford) (Lab): On a point of order, Mr Hood. Have you had any indication whether the Home Secretary will come to the House either this evening or tomorrow morning to make a further statement on Abu Qatada? She is currently in the television studios addressing the issue that has emerged this afternoon, which is that the Home Office may have got the dates wrong and may have illegally arrested Abu Qatada yesterday. Do you not think it would be appropriate for the Home Secretary to come to the House, clear up this shambles and let the House know what is going on?

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The Temporary Chair (Mr Jim Hood): This is the second time that I have had to deal with a point like this and that is not a point of order for me. I have been chairing the Finance Bill Committee for the past two hours and I am unaware of whether anybody has been in touch with the Chairman of Ways and Means or with Mr Speaker himself about any such statement. That is a matter for the usual channels and not for me.

Clause 209

The Bank Levy

Owen Smith: I beg to move amendment 5, page 121, line 19, at end add—

‘(2) The Chancellor of the Exchequer shall review the possibility of incorporating a bank payroll tax within the bank levy and publish a report, within six months of the passing of this Act, on how the additional revenue raised would be invested to create new jobs and tackle unemployment.’.

The Temporary Chair (Mr Jim Hood): With this it will be convenient to discuss clause stand part and schedule 33 stand part.

Owen Smith: It is a pleasure to serve under your chairmanship, Mr Hood—the first chance that I have had to say that today.

Clause 209 and our amendment to it, amendment 5, relate to the bank levy. The point of the amendment is to raise the issues that Opposition Members believe ought to be at the forefront of the Government’s thinking and at the heart of their Budget: what we do to stimulate growth and, in particular, to generate jobs in our economy. Crucially, on a day when we have seen yet another report, this time from the Institute for Public Policy Research, on the scarring impact of long-term unemployment on, in particular, young people, and on a day when we still see 1 million young people languishing on the dole, it seems to me a very easy argument and a very simple point to make to the Government that such issues ought to be at the forefront of not just our mind but theirs.

This aspect of the Bill, the bank levy, offers an opportunity for the Government to do something to fill the gaping hole at the heart of their Budget when it comes to creating growth and generating jobs. There is not a single word in the Budget or in the Bill about the problem of youth jobs, and that is a crying shame, so I hope that the Government will later today amend that omission.

In a moment I shall discuss the background to the bank levy, but to begin with I shall draw together some of the common themes that run through my remarks and the Bill—themes from the debate that we have just had on clause 1 and this debate on clause 209 and the bank levy.

First, I want to raise some questions about the Government’s competence. Clause 1, the profound uncertainty about Government decisions, the other more general decisions in the Budget in relation to VAT on caravans and on pasties, which we will debate later, and the various other curious measures that they have brought forward have all already raised enormous and pressing questions about the competence of the Chancellor and the Government when it comes to managing our economy.

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Secondly, there are questions about certainty. Earlier we debated the HMRC report on the Exchequer effect of the 50p rate, and Opposition Members such as the hon. Member for East Antrim (Sammy Wilson) and my hon. Friend the Member for Rhondda (Chris Bryant) asked significant questions about the accuracy of the Government’s modelling in that report and the accuracy of the claims that only £100 million will be lost to the Exchequer. There are further questions to be asked about the accuracy with which the Government have measured the impact of the bank levy to date and juxtaposed it with the rates of revenue which were raised by the bank bonus tax that the previous, Labour Government introduced.

Thirdly, there is a crucial set of questions about values and priorities, because both the clauses that we have debated to date and the clause before us raise questions about the priorities and values of this Government versus those of the Opposition. Those questions do not reflect terribly well on this Government, Mr Gale, it is a pleasure to welcome you to the Chair—[ Interruption. ] Sir Roger, of course. How on earth could I have forgotten? Sir Roger, welcome. It is a pleasure to serve under your chairmanship.

I suggest that the Government could simply do the decent thing today by deciding to retain the bank levy but also introduce a bank bonus. That would be the wise thing to do, and it would set about raising the revenue that could be used to try to create 100,000 jobs for young people.

Mr John Redwood (Wokingham) (Con): Does the shadow Minister think that the Royal Bank of Scotland and Lloyds HBOS need less profit and less retained cash to get out of the mess they are in, or more?

Owen Smith: I would be terribly happy for all the banks, including RBS and HBOS, to make more profit. That would clearly be a very good thing for the British economy; we are entirely agreed on that. At the moment, however, they are not being asked to bear a particularly heavy burden, and nor are the other banks that are already making significant profits—lower than in previous years, but still significant. It is not easy to square that with the Conservative Government’s previous commitment to honour our intention to make those with the broadest shoulders bear the greatest burden. The Government’s decisions on the 50p rate and the bank levy do not bear out their former agreement with us; rather, they speak of a Government who have decided to make a different set of decisions over the past few years, as borne out most recently by the 50p tax rate. The Government should think again about how much money they are raising from the banks and what is the appropriate amount that they should raise.

Alun Cairns: Will the hon. Gentleman give way?

Owen Smith: I will keep going for a moment and then happily give way.

The bank levy currently impacts on banks only after the first £20 billion in equities and liabilities is taken into account, capturing, in effect, the millionaires of the corporate world. When the idea of the levy was first mooted—initially by Labour Members and then after being picked up by the International Monetary Fund—

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I am afraid that that is true. My right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) first mentioned a bank levy, and then the IMF picked up on it. It is a simple point, but I will happily give way if the Minister wants to intervene.

The Financial Secretary to the Treasury (Mr Mark Hoban): May I point out that the previous Government ruled out a bank levy because they did not want to introduce one unilaterally? This Government had the courage to do that, and to do the right thing so that banks could pay their fair share to the Exchequer, whereas the previous Government ran away from the issue completely.

Owen Smith: When the IMF first talked about a bank levy, it thought that an equitable, sensible amount to get from the banks in this country was £6 billion—not the £2.5 billion that the Government claim to be raising. The reality—people out there ought to understand this—is that by the end of the current spending period, the Government will be raising as much from people who eat pasties, buy or sell caravans, sit in caravans, do up listed buildings and do all the other things that have been changed under the VAT rules as they will be raising through the bank levy. That is the real comparison. The right hon. Member for Wokingham (Mr Redwood) laughs, but it is a fairly accurate comparison, and people out there will not think that it is fair or equitable. They will not understand why caravan users and pasty eaters—even if the pasties are not eaten at an ambient temperature—should bear the same degree of pain as the bankers, who, as I think many people would concede, were at the very least involved in the global crisis that paved the way for the recession of recent years.

Mr Hoban: The hon. Gentleman said that the VAT changes will raise as much as the bank levy. If he looks at table 2.1 on page 50 of the Red Book, he will see that in 2016-17 closing loopholes and correcting anomalies will raise about £350 million, but the bank levy will raise £2.5 billion. How can he square the two statements that he made?

Owen Smith: May I take this opportunity, Sir Roger, to apologise to you, to the Minister and to the House for misleading you all? Of course, I misspoke; I should have factored the granny tax into all the VAT changes. If the Minister does the maths, I am sure he will find that when one adds in pensioners on top of caravanners, those eating pasties, and those affected by the other VAT changes—

Mr Hoban: If the hon. Gentleman looks at page 50 of the Red Book, he will realise that he is still £1 billion short. He needs to get his facts right before he makes such statements.

Owen Smith: I am afraid that I have been getting my facts right all afternoon: it is Government Members who have been getting their facts wrong. [ Interruption. ] No, amendment 1 was not wrong; it was absolutely spot on. To say that it was wrong is nonsense.

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4.30 pm

Let us get to the question of how much the Government are raising through the bank levy and how much the previous Government raised through the bank bonus tax. Just as the fallacious claim that the £100 million that will be lost through the change to the 50p rate will be met fivefold by increases in taxes on the wealthiest has been proven today to be completely false, because the £100 million figure was plucked from thin air, so the Government’s manipulation of the figures in relation to the bank levy and the bank bonus tax will be shown to be false. The independent OBR, which the Government are so fond of quoting when it suits them, states on page 101 of the blue book that in 2010-11, the bank payroll tax raised £3.5 billion.

Mr Hoban: Gross.

Owen Smith: The Minister gives the lie to the argument that the Government have made about this figure, which allows them to state that it is £2.3 billion, not £3.5 billion, and is therefore lower than the £2.5 billion that they are ostensibly raising through the bank levy. Of course, both the £2.3 billion figure and the £2.5 billion figure are open to question. It is not just me who thinks that; many commentators have said so.

How did the Government manage to reduce the yield of £3.5 billion that is written in black and white on page 101 of the blue book to £2.3 billion? I could tell the Committee, but I will go one better and read out a comment piece from the Financial Times from earlier this year:

“The Treasury reached its £2.3bn figure for last year by lopping off £1.2bn from the original £3.5bn figure—citing the income tax and NI which the exchequer may have lost due to banks paying lower bonuses than they might have done. (A speculative behavioural assumption).”

As anybody who has read “The Exchequer effect of the 50 per cent additional rate of income tax” will know, highly speculative behavioural assumptions are the bedrock of this Government’s economic policies. The article went on to forecast that the bank levy, which was meant to reach £2.5 billion in 2012, would actually reach only £1.3 billion. In truth it reached £1.8 billion, but it certainly did not reach the £2.5 billion that is claimed repeatedly by Government Members.

Stephen Williams: The shadow Minister said that the figure of just over £1 billion being lost because of behavioural change was speculative. Of course, the previous Chancellor stated that the bank bonus tax was introduced in the last Parliament to drive down the awards of bonuses. It was meant to change behaviour. The previous Chancellor therefore speculated at the time that there would be a reduction in the number of bonuses and, therefore, in the income tax and national insurance contributions taken in by the Treasury.

Owen Smith: That would have been a good intervention, were it not for the fact that the £3.5 billion that was realised is written in black and white on page 101 of the

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OBR document. It is clear how much money was raised—£3.5 billion.




If the Minister wants to intervene to correct me on that, he can do so.

Mr Redwood: Will the hon. Gentleman give way on that point?

Owen Smith: Yes.

Mr Redwood: The shadow Minister is not completing the thought. We are not disputing the gross amount. We are asking how much other revenue was lost because of the behavioural consequences. He has agreed that the purpose of the bank bonus tax was to drive down bonuses. Assuming that there was some success, the Exchequer must have lost a pile of money in other taxes.

Owen Smith: The right hon. Gentleman is right that there would have been behavioural impacts. We do not dispute that, nor do we dispute that there would have been behavioural impacts in respect of the 50p rate. What we dispute is that the behavioural impacts would be as significant as those projected in the document on the 50p rate and those alleged by the Government on the bank levy. Given how fallible those projections have been shown to be in today’s Treasury Committee report and in any number of comments written about the HMRC report on clause 1 and the 50p rate, we are entirely right to question the basis of the assumptions both on the 50p rate and on the bank levy.

Mr Redwood: If the hon. Gentleman reads the Red Book further, he will see that £4 billion-plus more a year will be raised from self-assessment income tax under the 45p rate than under the 50p rate. Indeed, in the year to April 2012 there was a 9% reduction in self-assessment income tax, because the top income tax payers paid themselves 25% less than the year before.

Owen Smith: At the danger of being ruled out of order for repeating today’s earlier debates—[Interruption.] The Financial Secretary says from a sedentary position that I am on the back foot, but I am absolutely not. I have been pointing out to his colleagues for the past couple of hours that the volume of behavioural change anticipated in the Exchequer analysis is fundamentally flawed. The taxable income elasticity point chosen by the Exchequer to derive that volume of behavioural change is completely outwith the normal delta used by economists to assess the elasticity of top incomes. [Interruption.] No, we are talking about the future. We are talking about what behavioural change there will be and what the yield will therefore be in future.

That takes us to the central question of the Government’s competence. There are questions to be asked about the competence of the way in which they set up the bank levy. Why on earth did the Government choose in the first instance a rate of 0.045%, only to have to increase it five times in the past 18 months to hit their annual yield target of £2.5 billion? I would be delighted to hear the Financial Secretary explain that to us. Why did the Government do it that way around? It does not make any sense to me. It would have been more sensible either to have stuck with the payroll tax, as we suggested, or to have arrived at a hard figure and allowed the yield to set the rate, not the rate to set the yield.

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Thus we come to the question of how the Government can keeping saying that they are certain that the bank levy will yield £2.5 billion each year. It did not in its first year, when it hit £1.8 billion. The reason the Treasury team is continually having to tweak the rate is that it is not certain how much money it is going to yield.

Mr Hoban: Is the hon. Gentleman against the rate going up or in favour of it?

Owen Smith: I am absolutely not against the rate going up. My question is about the Government’s competence and whether they know what they are doing. They clearly do not know what they are doing about the granny tax, the 50p rate, VAT—

Mr Hoban: He’s all over the place.

Owen Smith: No, you’re all over the place, with the greatest respect, as this car crash of a Budget has shown not just to the House but to the whole country over the past three weeks. As an editorial in The Times said on Monday, when the Budget is still leading the headlines three weeks after the Chancellor has sat down, we know something has gone wrong, and it ain’t just one thing that has gone wrong but just about everything.

Lyn Brown (West Ham) (Lab): I have been reading the media reports too, and I have been astonished to find the Prime Minister called a dilettante. Would my hon. Friend like to comment on that?

Owen Smith: I am not sure that he is a dilettante, but I certainly think he does not pay terribly much attention to details. Had he paid attention to details, he would not have said what he did earlier today in Prime Minister’s questions, when he told the House that the 50p rate had raised next to nothing, only to have his Exchequer Secretary confirm just a few hours later that the actual amount it had raised was £700 million. By my way of looking at it, in a period of fiscal austerity £700 million is not nothing, it is rather a large chunk of change. Certainly the £3 billion that we might lose over an extended period is a very large chunk of change.

I do not know how the Government continue to argue that we are all in it together, when they have given a tax cut to 14,000 millionaires, or how—this is a political point—they can continue to say that the only thing that matters economically is to cut the deficit. They have chosen to forgo a lot of money next year. Let us call it £700 million, but it will be far more. They have done that to give a tax cut to millionaires, so how on earth can they continue to say that only thing they care about is cutting the deficit?

Brandon Lewis: Does the hon. Gentleman agree that it was a mistake to introduce a bonus tax that was not only a one-off, but that was set up so that it would encourage people to pay less and therefore reduce the amount of money going to the Exchequer, as opposed to introducing an ongoing levy that will continually bring money into the Exchequer and therefore benefit the country?

Owen Smith: One needs to consider these things in the round. We have heard repeatedly from the Government that they will take more money from the rich than the

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previous Government and do more on tax avoidance, but none of those claims stands up to scrutiny. The previous eight Labour Budgets did more on tax avoidance than the current Government—those are not my numbers, but those of the IFS. The notion that the rich in this country are paying five times more than the poorest is clearly fallacious.

Brandon Lewis: Will the hon. Gentleman clarify what he said because he has not answered my point, which was not about tax evasion? Does he agree that an ongoing bank levy will raise more money than a one-off tax would have done?

Owen Smith: If Labour had won the election, it may have changed its view and continued the bank bonus tax. The Opposition certainly believe that Government ought to impose a bank bonus tax in addition to the current levy—[ Interruption. ] Well, the bonus tax was introduced for a one-off period, but I think a Labour Government would have continued it based on our priorities and values that we described in respect of the 50p rate. We would not have thought it right at this juncture, in a period of fiscal austerity, either to give a big benefit to the wealthiest individuals or to ask the wealthiest corporations to pay a lesser amount.

Kelvin Hopkins (Luton North) (Lab): The hon. Member for Great Yarmouth (Brandon Lewis) implies that paying tax is voluntary, but surely it is compulsory in this country. It is just a question of ensuring that the people who owe tax pay it.

Owen Smith: The debate on the 50p rate was interesting in that it revealed the differing attitudes of Opposition Members and Government Members to paying taxation. From the way in which some Government Members responded to the debate, one could surmise that they are very comfortable with people finding every possible means, illicit or legal, to avoid tax. [ Interruption. ] Well, there was a clear implication from some hon. Members in the earlier debate that the boundaries and borders of the envelope can be pushed, as they were. In some respects, that argument was deployed to justify the cutting of the 50p rate, because so much money was, through fair means or foul, pulled forward into 2009 when it should have been taken in 2010.

Karen Bradley (Staffordshire Moorlands) (Con): If the Labour party is so keen on stopping tax avoidance, will the hon. Gentleman explain why Labour Members voted against an anti-avoidance measure in a Finance Bill last year?

Owen Smith: Will the hon. Lady explain which anti-avoidance measure Labour Members voted against? I tell her very straightforwardly that all Chancellors ought to tackle tax avoidance in all Budgets. The current Chancellor has risked far too much credibility on his belief in his ability to tackle tax avoidance and his belief that he is doing more than previous Governments did so. The facts bear out my claim—the IFS, not the Labour party, has done the analysis—that Labour Chancellors, in seven out of last 10 Labour Budgets, raised more money for the Exchequer through tackling tax avoidance than the current Chancellor will do with

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this Budget.

Michael Connarty: Is my hon. Friend aware that since they came to power the Government have had the ability to forbid the Cayman Islands to refinance its sovereign debt unless it revealed all the transactions taking place in the Cayman Islands? I understood that to be one of the things they aspired to do to stop people putting money into tax havens to avoid paying tax in this country. They have failed to do so and allowed the Cayman Islands to refinance its sovereign debt without any conditions whatsoever.

4.45 pm

Owen Smith: As is in the Bill, have also cut a deal with Switzerland that allows people avoiding tax by the Government putting money into Switzerland to continue doing so. Again, on the plausibility of the Government’s estimates, they claim that it will net between £4 billion and £7 billion for the Exchequer, but the OBR thinks that highly questionable.

Alun Cairns: I am astounded by the Opposition’s attitude, particularly given that their major party donor used to use those benefits in Switzerland, which we have now closed, and to hear them brag about the previous Government’s anti-avoidance measures, given that their candidate for Mayor for London is using every scheme in the book to avoid paying tax. What influence have those changes had on him?

Owen Smith: The hon. Gentleman ought to read some of the Budget documentation. The Government have not closed anything in respect of Switzerland; they have opened it up and continued to allow people to put money into Switzerland. They have asked them to acknowledge how much they have there and then charged them a lower rate of tax than they would have been charged had they kept their money in the UK. What is worse is that it runs fundamentally contrary to the European train of thought, established across Europe and supported by the previous Labour Government over their last five years, which is that we want more transparency, not less, in our tax affairs. Unfortunately, we will have less transparency as a result of his Government.

Kelvin Hopkins: I find it tiresome that while the overwhelming majority of my constituents, who are ordinary working people, pay tax through pay-as-you-earn and have no opportunity to evade or avoid, we spend countless hours debating the minority of rich people, defended by the Conservative party, and their tax affairs. I want the rich to pay their taxes in the same way as those on PAYE so that they do not escape paying one penny.

Owen Smith rose—

The Temporary Chair (Sir Roger Gale): Order. I am beginning to find it a little difficult to relate this debate to amendment 5 or the related matters. Perhaps we could return to them.

Owen Smith: I am grateful to you, Sir Roger, although I found that debate terribly entertaining. [Interruption.] Oh no, I am more than happy to talk about tax avoidance all evening, especially about the Swiss deal, which is particularly disgraceful. No doubt we will do that upstairs in Committee.

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I return to the question of the bank levy and the bank bonuses tax and which was the most effective measure. It is clear that, as the OBR said, the bank bonus tax raised £3.5 billion in 2010, which is almost twice what the levy raised in 2011. Those are not disputable facts; they are there in black and white in the Red Book and the OBR’s analysis. Choosing not to reinstate our bank bonus tax represents an effective tax cut for the banks.

Nigel Mills (Amber Valley) (Con) rose—

Brandon Lewis rose—

Owen Smith: I shall keep going for a moment.

That is before we consider the actual tax cuts being introduced in the year-on-year reductions in corporation tax and the other changes to the controlled foreign companies legislation.

Stephen Williams: The hon. Gentleman says that banks will all get a tax cut because of the reductions in corporation tax. That assumes that they have taxable profits. Many have accumulated losses and will not be paying corporation tax for quite some time, whatever the rate.

Owen Smith: I would not dispute that for a moment. Many of the banks are under water and so will not end up paying tax for a significant period, but not all of them, and that is my point. Broadly speaking, the banks and financial services account for about 8% of corporation tax in this country. Overall, there will be a reduction to the Exchequer, through the cut in corporation tax to 22%, of about £5.5 billion per annum. That is leaving aside the CFC changes. On average, then, we would expect the financial services and banks to get about £450 million off their tax bills as a result of the Government’s changes. That is the point I am making. The question that needs to be asked in the round is what we are doing to tax corporations and tax our banks.

Nigel Mills: Does the hon. Gentleman agree that we need a predictable tax system, so that investors can understand what they will be expected to pay? When measures are described as “one-offs” or “temporary”, we ought to be able to rely on that, rather than allowing them to be permanent fixtures.

Owen Smith: By and large I would agree with the hon. Gentleman. Tax policy ought to be predictable. Indeed, the current Government deserve some credit for continuing with the trajectory set by the previous Government on tax policy planning and tax making, by seeking to consult significantly and publish things well in advance. [ Laughter. ] For some reason the Minister is chuckling. I would point to the introduction of the 50p rate, which was first mooted in 2009 and introduced in 2010, which was probably what led to all the forestalling. However, that approach is a good idea, by and large. We ought to consult carefully on tax policy, because as this Government are learning to their cost, so often there are unintended consequences of tax policy. I might highlight, for example, the simplification introduced so blithely by the Chancellor in his Budget speech, when in just one sentence he waved away Churchill’s special personal allowance for the elderly and introduced the

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granny tax. That was a simplification that seemed sensible at the time, but in hindsight it has had unintended consequences.

Michael Connarty: We would all agree—hopefully one day Governments and Chancellors will also agree—that we should not do unpredictable things in tax policy. The thing that has damaged the economy tremendously and harmed all our constituents is the production tax on oil and gas in the North sea, which has disincentivised people massively and sent the price of fuel through the roof for people who cannot afford it, damaging their employment prospects and the economy of the country.

Owen Smith: At the risk of stepping off-piste again and incurring your wrath, Sir Roger, all I would say is that that is another example of this Government’s incompetence. A year ago they were trying to squeeze the oil and gas companies by introducing new taxes on them. Then the Government were lobbied like billy-o for a year, and what have they done? They have effectively reversed the position. They have introduced a slightly different measure, but bluntly, they have taken money from one pocket and put it back in the other. If the Government had been a little more competent, if they had shown a little more foresight and if they had thought things through a little, as they so clearly have not done with this desperate Budget, they might not have made those mistakes.

Brandon Lewis: To return to the bank levy, the hon. Gentleman has referred again to the potential reintroduction of the bank bonus tax. Bearing in mind that the right hon. Member for Edinburgh South West (Mr Darling) said that it could only ever be a one-off, is the hon. Gentleman saying that the previous Chancellor was wrong, or will he say how many times something has to be reintroduced before it is no longer a one-off? I am just curious.

Owen Smith: I am saying that Chancellors have to keep things under review. In a period of fiscal austerity such as we are in right now, I am confident that a Labour Chancellor—particularly one as knowledgeable and shrewd as my right hon. Friend the Member for Edinburgh South West (Mr Darling)—would have found ways to try to exact a fair return and a fair set of receipts for the Revenue from the bankers, who, we must all remember, were complicit at least to some degree in some of the problems that we have faced over the last few years.

Seema Malhotra (Feltham and Heston) (Lab/Co-op): We all agree that the financial services industry is vital for our economy and that we want it to remain a world leader. However, we also understand that it needs to pay its share towards getting the deficit down and dealing with some of the consequences of the downturn. We have discussed the fact that the amount raised by the bank levy is just over half the amount raised by Labour’s bank bonus tax—£1.8 billion compared with £3.5 billion. However, a repeat of the bank bonus tax would not be permanent, but would be a temporary measure. It could be construed as temporary to do it again, realising that we need to pay the cost of tackling long-term youth unemployment, which, as we know from a report out today, could hit nearly 1 million. We need to look at priorities and deal with what is vital for young people’s futures.

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Owen Smith: My hon. Friend is right. She is talking about the values and priorities that I mentioned at the beginning of my speech. What are our values? What priorities do we set, according to those values, in respect of fiscal and budgetary decisions? At the moment, it is hard to discern that this Government’s values involve anything other than protecting privilege at the expense of hard-working families and of the most vulnerable in our society.

Mark Durkan: The amendment represents an attempt to make the bank levy a more articulate tax by incorporating a payroll tax element into it. Would an attempt to ensure that bankers on excessive remuneration did not benefit unduly from the cut in income tax be consistent with the Government’s efforts to increase the levy because they want to ensure that banks do not benefit unduly from the reduction in corporation tax?

Owen Smith: That would be entirely consistent. The Minister knows that our amendment merely asks the Chancellor of the Exchequer to review the possibility of incorporating a bank payroll tax in the bank levy, and to publish a report within six months on how the additional revenue might be spent. We have suggested that we would spend it on creating 100,000 jobs for the unemployed youth of our country, 1 million of whom are still out of work today despite the recent small but welcome fall in unemployment. We would also spend the money on building 25,000 affordable homes, which are equally vital at a time when homelessness is rising at a rate that has not been seen for 25 years.

Andrew Gwynne: My hon. Friend is making a compelling case. May I share with him the figures that I have obtained from the House of Commons Library for the 16 to 24-year-olds in the borough of Tameside who are not in employment, education or training or on an apprenticeship? The figure for 2010 stood at an appalling 20%, or one in five. The most recent figure is 33%, or one in three. Does not that show how urgently we need to tackle the underlying structural employment issues in constituencies such as Denton and Reddish?

Owen Smith: It absolutely does. On Monday night, I put it to the Chancellor that he and those on his Front Bench were entirely out of touch with the reality in constituencies such as mine and that of my hon. Friend. Pontypridd is fortunate, right now, to have the prospect of a new supermarket opening, which will create 200 jobs, but 2,500 people queued 600 yards down the main street to try to secure one of those jobs. They came not only from my constituency but from right across south Wales. That is the desperate reality that many people in this country are facing. I saw the queue myself, and I know that many of those people were young and eager to work. They also felt that the opportunities for them were diminishing under this Government, rather than increasing. They are looking to the Government, and the Opposition, for action. They want us to put on the table solutions that will deliver growth and jobs and that will stop the economy flatlining.

Unfortunately, the net effect of all the measures in the Budget, including those in clause 209, will be an increase of only 0.1% growth in GDP—[ Interruption. ] The hon. Member for Vale of Glamorgan (Alun Cairns) shakes his head, but those are the numbers in his

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Government’s documentation that have been agreed and validated by the OBR: growth of 0.1% in GDP and growth of 0.7% in business investment, which is down almost seven points from where we thought we were going to be just 18 months ago. That is a desperate state of affairs. How on earth can he defend it?

Alun Cairns: It has been said in the previous debate as well as in this one how cautious the Chancellor rightly needs to be in planning the Budget and in working with growth figures. Does the hon. Gentleman recognise the improvement in the UK’s economic position announced by the Institute for Fiscal Studies earlier this week, leading it to increase its growth predictions?

5 pm

Owen Smith: Yes, I recognise that. I also recognise the Ernst and Young ITEM club, which uses precisely the same methodology and precisely the same numbers as the Treasury in calculating its growth projections. It said earlier this week that it did not expect to see 0.8% growth as the OBR anticipates, but 0.4% growth over the next year. It is not expecting 2% growth, but 1.5% growth in the following year. Very few credible commentators believe in the heroic suggestions of a bounce back next year, the year after and the year after that. Those suggestions are clearly a load of nonsense, just as it is a load of nonsense to assume that we will see 0.8%—

The Temporary Chair (Sir Roger Gale): Order. I assumed the Chair in anticipation and excitement at the prospect of listening to the debate on amendment 5 and the bank levy. We really are straying a long way from it. The Opposition Front-Bench spokesman has now been on his feet for more than 40 minutes, yet he has still not finished speaking to his amendment.

Owen Smith: I am grateful, Sir Roger. I am bringing my remarks to a conclusion.

The amendment we have tabled is very simple. It simply requires the Government to look at the possibility of reintroducing a payroll tax on the banks.

Nigel Mills: Will the hon. Gentleman give way?

Owen Smith: No.

We think that would generate significant revenues, which could be used to create youth jobs to tackle the scourge of youth unemployment in our country and to create new affordable homes. We want the Government to look at that; we want them to get their priorities right; we want them to undo some of the damage they have done in the last two years. That is why we will of course press the amendment to the vote when the appropriate moment comes.

Karen Bradley: It is a great pleasure to contribute to the debate on how we should tax our banks. First, it is important to put on the record the fact that I think banks should pay their share towards paying down the deficit. Every day, we are borrowing more money to pay for public services, so it is important for the banks to pay their share so that the deficit can be dealt with as soon as possible. How, then, does one take money or tax? As a tax accountant by training, I know that there

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are many different ways of extracting revenue from businesses. We can tax them based on their income or their profits or in many other different ways.

One thing about the bank levy introduced by this Government is that it guarantees that the banks will pay some tax. If they are loss making, their losses will not wipe out that tax. The bank levy cannot increase the losses; it is non-tax deductible for corporation tax purposes. We will be ensuring that, each year, the banks pay their fair share towards reducing the deficit.

Reductions in corporation tax are also not taken into account in the levy. It is absolutely the right thing to do to cut corporation tax. We need to cut it for all our businesses, to promote entrepreneurship, so that our businesses have more money left over at the end of every year to invest in new employment, new plant and machinery and shareholder returns. Given that shareholders are often our pension funds, it is extremely important that we ensure that those pension funds get the return that they so desperately need to allow our pensioners to enjoy the living standards they expect. As I say, reducing corporation tax is important, but we need to ensure that the banks do not benefit too much from that reduction—and the bank levy makes that happen.

Alun Cairns: Does my hon. Friend recognise that a balance needs to be struck? Banks need to pay their fair share, but we also need a level of taxation that will help us to attract to the UK the best bankers across the globe. We do not want to drive the banks overseas to Hong Kong, Switzerland or elsewhere, which would mean a net loss to the Treasury.

Karen Bradley: I entirely agree. Clearly 50% of nothing is not as much as 45% of something, It is important for us to tell the world that the UK is open for business, and to say “Bring your business to the UK”. That applies very much to the financial services sector.

We have already discussed how much money the banks might or might not pay towards reducing the deficit. What we are considering now is just the additional amount that they are paying as a result of the increase in the bank levy. They are, of course, paying an awful lot more to the Exchequer. I believe that the financial services sector contributes about £32 billion to our economy, and I think it important for us to retain and increase that amount of revenue. I firmly believe that we should have taxes that raise the maximum amount of revenue to be spent on our schools, hospitals and police officers, and that ideology should not determine how we set our tax rates.

The main point that I want to make about the bank levy is that it will raise the money irrespective of the amount of bonus paid. I remember when the previous Chancellor announced, in his 2009 pre-Budget report, that the banks would pay

“a special one-off levy of 50 per cent.”—[Official Report, 9 December 2009; Vol. 502, c. 367.]

At that time I was working in a large accounting practice, and was analysing the Budget. The biggest surprise came when the then Chancellor said that the Treasury expected the bonus tax to raise £500 million. Those of us who were in that firm at the time—it was one of the big four—were staggered that the Treasury should think that only £500 million-worth of bonuses would be paid,

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given that the tax meant that an equal amount would be paid to the Exchequer, and I think we have now seen that that did not happen.

The purpose of the levy was to drive behaviour. The point of it was that the banks would not pay the bonuses. The then Chancellor said that the Treasury expected a reduction in the level of bonuses that would be paid that year, but that simply did not occur: the bonuses were still paid. I personally believe that tax is a very blunt instrument for the purpose of driving behaviour, and that people will behave in the way in which they wish to behave, whether it involves charitable giving, buying pasties or paying bonuses. Tax is something that businesses “manage around”. They do not think of it as a behaviour driver, and it clearly did not drive behaviour in the way that the Treasury expected in that instance.

Mark Durkan: Has the hon. Lady not just contradicted what she said a couple of minutes ago? She suggested then that if we entertained this idea, we would ensure that banks became financial refugees in all sorts of other places in the world.

Karen Bradley: I do not agree about the contradiction. If it is suggested to the banks that the rate of tax will be at a certain level and that there will be a bonus tax, that will discourage them from remaining in the UK but it will not stop them paying the bonuses, which is what the Treasury wanted the special one-off tax to do.

Nigel Mills: Does my hon. Friend agree that the bank payroll tax has morphed from its original role of reducing bonuses to become purely a revenue-raiser in the eyes of those who want it, and that it is not even intended to reduce the amount of bonuses paid?

Karen Bradley: I was coming to exactly that point. It is, in fact, a revenue-raiser. We need to return to the question of how money can be raised from the banks, and if that is what we wish to do, I think that the bank levy is a better way of doing it.

In preparation for the debate, I rang various former colleagues and others involved in the financial services sector. I could not find anyone who would express the view that the bank levy was a terribly bad thing. They all accepted that the tax needed to be paid, and they thought that this was a reasonable way in which to pay it.

Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): I am trying to follow the hon. Lady’s argument. What impact does she think the bank levy has had on the level of bonuses given to bankers?

Karen Bradley: My point is that it is not the Government’s job to try to drive the level of bonuses. The last Government wanted to do that, and failed miserably. It must be accepted that the bank bonus tax is a revenue-raiser and not a behaviour-driver, and that it will not determine the way in which bonuses are paid. The actions taken by the present Government to limit the level of cash bonuses that can be paid, and other such measures, are far more effective in ensuring that the bonuses that are paid reflect the performance that contributes to the building and growth of a financial services business. That is what

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we want in our economy. We want businesses to grow, because if they do, they will pay more corporation tax. They will also pay more payroll tax, because a 13.8% national insurance charge is levied on all employers for the sums they pay their employees. Therefore, if the banks make more money, they will pay more in payroll tax, which is a good thing.

Nigel Mills: Does my hon. Friend agree that targeting a payroll tax at one industry is not a particularly coherent way of running a tax system? If those who propose doing that were truly concerned about inappropriate bonuses and high pay, they would want to impose a tax on other areas, too, such as high pay in the City—and, perhaps, on footballers or on energy businesses—rather than targeting it on just one industry that they do not happen to like at the moment.

Karen Bradley: My hon. Friend makes an important point. Financial services are an incredibly important part of our economy. The 2002 pre-Budget report revealed a drop in revenue, and the explanation it gave for that was that the expected City bonuses had not been paid, and as a result those bonuses were not contributing as much tax as forecast—and we all accept that we need to raise tax in order to pay for our schools, hospitals, police officers and all our public services.

The bank levy is the right way to tax the banks. It is not unpopular with the industry, so far as I can ascertain from the experts to whom I have spoken. They accept that they have to pay their share, and that that is the way they will do it.

Sheila Gilmore (Edinburgh East) (Lab): This debate has clearly demonstrated that Members have very different views on how to tackle the current economic situation. I was very struck by one commentator’s observation that the Government were leaving economic recovery to business—that they were expecting business to spring up and solve our problems. That is what we heard almost two years ago, in the so-called emergency Budget—which did not, in fact, do anything terribly urgent. We were told then that very shortly the shoots of private enterprise would spring to life, particularly if we cut the public sector. Almost two years later, we are still waiting for that, however; it simply has not happened. It is not good enough for us simply to sit back and say, “Somehow, this is going to sort itself out.” It is right to want to stimulate the economy, and to create jobs and work.

Construction and affordable housing are essential. I live in a city with an acute shortage of affordable housing. There are many planning permissions and consents in place for new house building, which would have had at least an element of affordable housing, so the problem is not the planning system. Nothing is happening, however. The ground lies idle, and the building firms have paid off their workers and are waiting for the upturn, hoping that the land values will carry them through.

What is so wrong with wanting to raise some extra revenue and stimulate the economy in that way? If building workers are back in employment and private building firms are flourishing, then those workers will have income with which to stimulate the economy.

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There has been a huge downturn in retail over the past few months. I read today that there has recently been a slight upturn because of the good weather in March, but, certainly where I come from, that has now been followed by three weeks of pretty rubbish weather, so presumably that upturn will now have been reversed. There has been a downturn in retail because people feel they do not have money to go out and spend. The whole local economy is affected by that. The knock-on effects on the local economy of investment in affordable housing are huge.

Jack Dromey (Birmingham, Erdington) (Lab): The Government’s own figures show that house building is down and homelessness is up. In 2008, a Labour Government acted, at the time of the bankers’ crisis, with a kick-start programme, which resulted in 110,000 homes built, 70,000 jobs created and 3,000 apprenticeships. That sustained the building industry. Do we not now need a fresh kick-start programme—hence the importance of our bankers’ bonus tax—so that we can build 25,000 homes straight away, create jobs for unemployed building workers and create hope and apprenticeships for the young people of our country?

5.15 pm

Sheila Gilmore: I agree absolutely. I saw clearly, in my city, the follow-through of that financial stimulus. It was followed through to the Scottish Government, and I give them credit for bringing forward some of the construction spending at that stage. We had more affordable homes built in 2009 than we had had for some years. I believe that the figure was 900 affordable homes, which is high for Edinburgh, but that has now plunged right down again. This was not sustained and we are back in the same cycle as we were in before. Such an approach can work, as we get the homes and the jobs, and we ensure that unemployment is not rising as fast as it otherwise would.

When Labour Members suggest stimulating the economy, Government Members invariably ask how we would pay for it. They say, “Oh, you are going to borrow yet more. That is absolutely shocking.” When we make any proposal on how we would fund it, we are immediately told, “You cannot possibly do that. You should not do that.” We are making a genuine proposal here. We have talked about it for several months, but it has not yet been taken up by the Government. The economy is still flatlining and we are seeing all the results of that in our local communities. So, yet again, we are justified in tabling this amendment.

We are constantly told about all the people who are going to go abroad if we do such and such a thing—we hear that banks are going to disappear off, to wherever—but there is not a great deal of evidence of that happening. It feels very much as if we are being blackmailed and as if powerful people are trying to say, “We will take our ball away. We are not going to play.” We have to be very clear that a lot of this does not actually happen in practice; indeed, there is evidence to suggest that the bankers did not leave the country during the period of the previous bonus levy. There is no evidence to suggest that they suddenly swanned off somewhere else. If we are serious about building and growing our economy, as we have to be, this measure will be one small part—it is not suddenly the answer to everything—of enabling us

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to get this economy going again. It will stop us from sitting on our hands and expecting that somehow to happen, because it will not.

Mr Redwood: I remind hon. Members that I am an adviser to an industrial company and to a small investment management business. I am not a tax adviser, so I feel able to participate in this debate.

I was interested in the Opposition amendment and it turns out to be rather disappointing, for a number of reasons. It asks the Government to produce a report

“on how the additional revenue…would be invested to create new jobs and tackle unemployment.”

As phrased, it does not actually ask for a report on how a bank payroll tax would work, although that is perhaps what Labour Members wanted, too. Interestingly, the Opposition have shifted from wanting a bank bonus tax—a tax originally described as a “one-off” and clearly aimed at very high earners in certain kinds of investment bank, which everybody loves to hate at the moment—to wanting in this amendment a general bank payroll tax. I ask them to think about what that means, because most of the people on the payrolls of our leading large banks are, of course, modestly remunerated. This payroll tax would give a further incentive to bank directors and managers to try to get rid of personnel they are employing, because if we tax something, we clearly do not like it. The Opposition say that they do not like payroll, so they are trying to tax payroll.

Owen Smith: I am grateful to the right hon. Gentleman for giving me this opportunity to clarify the wording—[ Interruption. ] No, there is no “Ah ha” moment, I am afraid. The wording we have used reflects the wording used by the OBR to describe the temporary bank payroll tax. It is no more than that.

Mr Redwood: It is worth teasing these things out, because I think we have had confirmation from the Opposition that they have in mind a general payroll tax, which would hit people other than the very high earners in investment banks. The amendment does not say “a bonus tax for investment bankers”, for example; it says a “payroll tax”. One therefore has to assume it would affect conduct.

Owen Smith: With the greatest respect, either the right hon. Gentleman misunderstood what I said or he is deliberately misrepresenting what I said—mischievously, I suggest. We were not intending to do anything other than replicate that which we have done previously, so a bonus tax is what we were talking about. The language adopted in the amendment is reflective of that used by the Government and the OBR—that is all.

Mr Redwood: Well, I think we are very grateful for that clarification. We await the details that, unfortunately, we did not get from the Opposition about how they would target the measure, whom they have in mind, how much those people would have to earn and how much bonus they would get. The point rests on perhaps a narrower base than the words in the amendment lead one to infer. One has to assume that the tax will lead banks to employ fewer people.

The tax that the Government have adopted also has consequences. They have decided to get extra money out of the banks by taxing the size of their balance

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sheets. I think the Government might be right that that is a slightly better way of doing things than taxing personnel costs because it is more general, but that too has adverse consequences. All taxation has adverse consequences as well as some positive uses. The Government tax encourages banks to shrink their balance sheets because they do not wish to pay too much tax. What does that mean in normal language? It means they want fewer deposits and less share capital and that they want to lend less money to people because the way to reduce the tax burden is to have less taxable capacity in the United Kingdom. The tax therefore has a cost. I do not disagree with what the Government are doing: I understand the awful financial situation that the country finds itself in and I can see how this tax is more popular than many others, but let us not pretend that these things are costless. At a time when we need more growth and more loans of a suitable kind to people who can afford to pay them back in order to create demand and more loans to smaller and medium-sized enterprises at a time when they need to grow, taxes on banks are not terribly helpful.

I am enough of a politician to know that banks are very unpopular and that it is an easy hit for politicians who want to improve their own popularity to take a position against the banks, so I am being something of a foolish hero by standing up and saying that not all banks are bad and that quite a lot of people who work for banks are perfectly decent people doing a decent job. The banking service that is supplied around the country to small and medium-sized enterprises and to you and me, Sir Roger, is very necessary, and sometimes it is well handled and well conducted.

There is a dreadful run of debate in this country that everything to do with the word “bank” is evil and wrong, that it serves the banks right and that everything has to be directed against them, but we have to work with the banks—the good, the bad and the indifferent—because we need them to be on the side of economic growth and recovery to tackle the very real problem that the Opposition have identified in the second part of their amendment—tackling unemployment. We need to get unemployment down, and one way of doing that is by having a strong banking sector working closely in partnership with the small and medium-sized enterprise sector and with those people who have a reasonable income and might want to borrow more to buy things and create demand.

Kelvin Hopkins: The right hon. Gentleman glosses over the fact that the banking system has two distinct components. There is the banking for ordinary people and small businesses and then there is the casino component, which is about gambling with vast sums of money—often our money—and often losing it by the billion. That is the bit of banking we are complaining about, not the retail banking that looks after our money and ordinary working people’s money.

Mr Redwood: If it were that easy to make the distinction and to close down or punish the one and reward or encourage the other, I am sure the outgoing Government would have done it. The fact that they did not implies that in office they realised the situation was far more complicated. When we consider the complications of a large conglomerate bank—as it happens the taxpayer should have a lot of knowledge about them because we

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are the forced owners or part-owners of two such banks—it is immediately obvious to any sensible analyst that the activities of the investment bank are deeply integrated with, and related to, those of the normal commercial bank; for example, in their service for small and medium-sized enterprises. A small or medium-sized export business may need forward currency cover or trade finance and credit, or it may have an investable surplus. It may need all kinds of services that go well beyond the basic banking that the hon. Gentleman was trying to describe—just having a current account to make payments and a simple savings account. The world is much more complicated than that. If we are to survive and compete in a global world with international trade, we need to be able to handle its requirements.

Mr George Mudie (Leeds East) (Lab): I do not share the right hon. Gentleman’s confidence that the banks are so optimistic, and that they are so ambitious to provide loans that will get jobs for the million youngsters who are out of work. The Government signed up to Merlin scheme for loans to small businesses, but were badly let down by the banks who did not live up to their part of the agreement. This year’s Budget wheeze is the loan guarantee scheme, which is supposed to get jobs for youngsters. The Treasury Committee took evidence and accepts in its report that the scheme will not provide additional lending for firms; it is only a method for lowering current rates, so why is the right hon. Gentleman so confident?

Mr Redwood: I do not think I expressed any confidence on the subject at all. The hon. Gentleman, the Government and I are in agreement that past levels of lending have been inadequate. That is why the Government have come forward with yet another scheme to try to encourage more lending, which I should have thought everyone in the House would want them to do. If the hon. Gentleman wants to know why there has been too little lending in the last couple of years, there are two simple reasons. The first is that after the crash the banks were forcefully regulated not to lend more—[ Interruption. ] The hon. Gentleman says that is nonsense, but their problem is obvious. The banks were told by the regulator that they needed to hold more cash and capital relative to their lending; the only way they can do that, especially the nationalised ones, is to keep lending down. They are not in a position to raise more money because the taxpayer does not want to put more money into RBS at the moment, and I entirely agree with the Government’s view that we should not be doing so. There is thus a regulatory squeeze on the amount of lending.

The banks would say that the projects are not out there. I am not so sure. The hon. Gentleman and I probably know of financeable propositions on which we would like to see the banks rise to the challenge. We hope that will be possible with the new scheme, but under the Opposition amendment we would spend any revenue that might be raised from what they call a payroll tax, although it is apparently a bonus tax on new jobs and tackling unemployment. We do not know exactly how much they have in mind; the amount would probably be quite modest, as it was from their bonus tax. If the banks see another bonus tax coming in this climate, there will be even fewer bonuses to tax, but the Opposition may welcome that.

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Mr Dave Watts (St Helens North) (Lab): Is it not right that the people who caused financial problems and hardship for many families and created mass unemployment pay a fair amount of tax to compensate for the damage they did to the economy? Is that not exactly what the amendment would provide for?

Mr Redwood: Many people would think that the outgoing Government had a lot of responsibility for the crash, along with their professional advisers, the quangos and the Bank of England, who apparently did not see it coming. They had very light regulation in the lead-up to the credit crunch and then very tough regulation. [ Interruption. ] Labour Members feel there is some justice in my response, as they are getting very heated, but we are straying rather far from amendment 5.

The point of the amendment is that the Labour party wants to raise an unspecified amount by taxing unspecified people who apparently earn more than Labour thinks is good for them. The Opposition would spend that on youth measures, and they want the Government to come back with a report on how that money could be spent.

My hon. Friend the Member for Staffordshire Moorlands (Karen Bradley), who rightly said that she could support a bank levy to try and get the deficit down, was speaking sense, but this, as she will have realised, is not the proposition of the Labour Opposition. They do not want to get the deficit down. They want to find another pot of money to increase spending. I am with them in their aim of reducing youth unemployment. We will make much more progress in reducing youth unemployment if we have stronger banks able to finance a more vigorous recovery. I urge the Government to work more strongly on that. The more money they take off the banks in taxes, however tempting that is, the less the banks will be able to lend to people to get the recovery going, so the proposal could be self-defeating.

5.30 pm

Mr Bailey: I had not intended to speak in the debate, but I felt it was necessary to contribute to try and counter the argument from Government Members that taxation does not drive behaviour. It does.

The arguments that I have heard from Government Members are contradictory. On the one hand we are told that the bank bonus tax did not change behaviour and there was therefore no point in imposing it. On the other hand it is argued that if we have excessive taxation, people will leave the country and move banking elsewhere. One cannot argue both cases at the same time. Either taxation alters people’s behaviour or it does not. I believe that it does, but it is incredibly difficult to assess what will happen. The Treasury predictions over the past few years have not been very good at doing that.

The point has been made by several speakers that the original bank bonus tax was designed to drive behaviour, rather than to raise money. That resulted in an original estimate of receipts of about £500 million. Although the then Chancellor made it clear that it was a one-off tax, it was also made clear in the pre-Budget report that

“the Government will consider extending the period of the charge so that the tax remains in place until the relevant provisions of the Financial Services Bill come into force. Where there is evidence of avoidance schemes being put in place, the Government will take action to close those schemes.”

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Implicit in that is the anticipation that other measures would defeat the bonus culture that was so damaging to our economy. It leaves open the suggestion that the then Government were prepared to review the tax if that did not happen.

It is obvious that the tax did not affect the bonus culture, which is why the tax raised about £3.5 billion. It is interesting to note that even as late as March 2010 the Treasury estimated that it would get only £2 billion—a huge underestimate of the amount that the tax would raise. Given that it raised more, behaviour had, by definition, not changed.

It is difficult to know whether the absence of any change in behaviour was in anticipation of a Conservative Government coming in who would not tackle the problem. That is a possible assumption. I contend that the previous Government had left open the option to deal with that culture, and this may be one of the measures that they would have taken both to raise revenue and to deal with the bonus culture. Given the June 2010 Budget introduced by the subsequent Chancellor and the apocalyptic vision he presented of the nation’s finances, I find it strange that a bonus tax that was raising so much money should be abandoned so readily and ruled out of consideration. The substitute tax is quite obviously designed not to raise as much and is not in accordance with the principles of responsible capitalism to which the Government say that they are committed. If we want responsible capitalism, it seems to me to be quite sensible to have a taxation regime that penalises those who act irresponsibly while at the same time raising a considerable amount of money to offset any potential burdens on those who act responsibly.

Alun Cairns: If the motivation behind the bonus tax is to tax those who have acted irresponsibly, would the hon. Gentleman suggest that we had an additional tax on former Labour Ministers who led us into the situation that has contributed to the debt of the nation?

Mr Bailey: Perhaps we should. Perhaps we should introduce a tax on certain members or major funders of the Conservative party, too.

Mr Watts: Does my hon. Friend not think that it a bit ironic that people who are suggesting that the previous Labour Government’s problems created the financial crisis are the same people—the Liberal Democrats and the Conservatives—who were calling for less regulation? It is interesting how the Government are trying to rewrite history.

Mr Bailey: I have often made the same point myself. I was on the Government Benches at the time of the so-called financial crisis and the run-up to it, and I do not remember any demands whatsoever from the then Opposition for us to introduce heightened regulation of the banking system. It is very easy to be wise in retrospect.

Mr Redwood: I think the hon. Gentleman has experienced some memory loss on that point, because I can remember both the Conservative and Liberal Democrat parties pointing out—as I did, too—that the borrowing was excessive and needed to be reined in.

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Mr Bailey: I believe that the right hon. Gentleman introduced a paper on reducing regulation which subsequently disappeared and sank without trace in the light of the financial crisis.

In conclusion, we can argue about the behavioural changes but one thing that is absolutely certain is that the bank bonus tax raised a lot of money, that it was consistent with the principles of responsible capitalism and that it may well have affected the behaviour of bankers in the long-term if they had known that the tax would be in place as long as their behaviour justified it. The fact that the Government have removed it has meant that the bonus culture has continued. There is still a sense of unfairness and outrage within the community at large that they will have to pay for the excesses of the banking community and that the Government are not prepared to do anything about it. Even at this late stage, if the Government believe that we are all in it together, that is one thing they could do that would both benefit the Treasury and demonstrate their commitment to that principle.

Mr Hoban: This has been a useful debate and the clause and schedule that we are debating legislate for a change in the rate of the bank levy, increasing the full rate to 0.088% from January 2012 and making a further increase to 0.105 % from 1 January 2013. The rate changes are intended to ensure that the levy will raise the £2.5 billion a year that we said that it would and ensure that the additional corporation tax rates do not benefit the banks, a point that the hon. Member for Pontypridd (Owen Smith) did not seem to recognise.

The amendment looks remarkably familiar, as it was proposed last year, and it is good to see it being given another outing this year, but in the shadow spokesman’s 43-minute speech we heard remarkably little about it. We saw him dig himself out of a few holes of his own making, but we did not hear anything about whom it was targeting, what measures would be taken into account or, indeed, how much it would raise.

I say that because I have been going through some transcripts of radio interviews, and so far the Opposition have claimed that their measure would be used to finance £29.6 billion of additional spending or taxation. That is 10 times the amount the bank payroll tax raised when the Labour party was in government, but that is not just protestation on my part. The Leader of the Opposition, when quizzed by Jeremy Vine on 6 January 2011 about how the Labour party would pay for its VAT rise reversal, replied:

“I said for example we should have a higher bank levy.”

He was asked in a Fresh Ideas question and answer session—we have not heard many fresh ideas in today’s debate—on 25 March 2011 about how to cut the deficit, and he said that there should be “another bankers’ bonus tax”.

That is not a concoction; those are the words of the hon. Gentleman’s party leader, and I am afraid to say that the starting bid is £29.6 billion—[ Interruption. ] The hon. Gentleman should not question people’s arithmetic when his own was earlier found to be flawed. He should be very careful what he says. I suggested to him last night that he should have spent more time on his speech and less time in the Members’ Dining Room, but he ignored that advice. He should have followed it, shouldn’t he, really?

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So we do not know how much the Opposition’s proposal would raise or at whom it would be targeted, and there is a stark difference between it and the levy that we introduced when we came into office. The bank levy is a tax on the balance sheets of banks, banking groups and building societies, and it complements wider regulatory reforms aimed at improving financial stability, including higher capital and liquidity standards. The levy ensures that the banking sector makes a fair and substantial contribution, reflecting the risks that it poses to the financial system and to the wider economy. The levy is also intended to encourage banks to move away from risky funding models.

From the outset, the Government have clearly stated that they intend the levy to raise at least £2.5 billion each year. That is an appropriate contribution, which was set with consideration to the wider environment, and it reflects the international programme of regulatory reform, the global economic conditions and the need to maintain the competitiveness of the UK financial sector.

The forecasts produced by the Office for Budget Responsibility implied that, if we did not adjust the rate, receipts for future years would fall short of the expected £2.5 billion. We will undertake a full assessment, before next year’s operational review of the bank levy, of the reasons why there is a shortfall, but fragility in the eurozone will inevitably have had a greater than the previously expected impact on last year’s balance sheets. The rate increase introduced in the clause puts us back on track to ensure that from 2013 and in future years the levy will raise at least £2.5 billion.

The target yield was set out in this Government's first Budget, when we also announced our intention to make significant cuts to the main rate of corporation tax. We were clear at the time, as we are now, that the bank levy yield far outweighs the benefit that banks receive from the corporation tax change. Other sectors, including manufacturing, will benefit from the reduction in corporation tax, but the banks will not benefit because the bank levy rate increase will offset it.

Since our first Budget, we have gone further: we have announced additional reductions in the main rate of corporation tax, so that it now stands at 24%; and we will continue with the two further cuts planned next year and the year after. As a consequence, Britain will have a 22% rate of corporation tax—the lowest in the G7. To offset the benefits to the banking sector, and to maintain the same incentives on the banks to move to less risky funding, the increase in the levy rate in this clause takes into account additional cuts in corporation tax.

The Opposition’s amendment seeks to reintroduce the bank payroll tax, and, as I said earlier, this is not the first time that we have heard it suggested. The House disagreed with it last year, and now, as then, the Government believe that such a tax would be counter-productive and unnecessary. The tax was introduced in the last Parliament as a one-off interim measure ahead of changes in remuneration practices from corporate governance and regulatory reforms. As the previous Chancellor clearly stated, it could not be repeated. The net yield of this one-off tax, accounting for the impact that it would have on income tax and national insurance contribution receipts, was £2.3 billion—less than our annual target for the permanent bank levy. The previous Government

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told us that they would apply the bank bonus tax only until changes in remuneration practices were put in place.

5.45 pm

As my hon. Friend the Member for Staffordshire Moorlands (Karen Bradley) pointed out, the Government have taken firm action in this regard. The Financial Services Authority’s remuneration code of practice sets out detailed rules on pay for firms in the financial services sector. The code ensures that bonuses paid for significant risk takers are deferred over a number of years and are paid in shares to retain a clear link between remuneration and performance. That is a clear break from what happened under the previous Government, when bonuses could be taken in the year in which they were awarded and in cash, straight away, with no chance of their being clawed back if future performance did not live up to the commitments given by management.

Alongside action to curb excessive risk taking and strengthen balance sheets, we are taking action to increase transparency and power for shareholders, including implementing the most comprehensive remuneration transparency and disclosure regime among the major jurisdictions; introducing ambitious reforms to the UK’s corporate governance regime to give shareholders the powers to hold directors accountable for remuneration decisions; and putting in place a wide range of policies to tackle the structural and tax distortions that are the source of unacceptable bonuses.

Mark Durkan rose—

Mr Hoban: I am trying to deal with the point that the hon. Gentleman made. It is clear that the bank payroll tax had a negligible impact on bonuses paid, whereas this Government’s action has led to bonus pools falling year on year. For example, RBS’s bonus pool fell by 40% compared with the previous year’s, and Barclays’ bonus pool was down by 25% compared with that in 2010. Real changes in remuneration practice are coming through as a result of measures that this Government have championed.

Mark Durkan: I wanted to ask about a previous point that the Minister made. He said that he hoped there would be shareholder activity to help to restrain bank bonuses. Would putting a bank payroll tax window into the permanent bank levy that the Government are introducing not be an aid to shareholders’ interests, because it would mean that the level of bank bonuses affected the overall levy that the bank was paying?

Mr Hoban: I think shareholders are well aware that bonus pools affect banks’ profitability and the amount that they are able to pay to their shareholders by way of dividends. I am demonstrating that the reforms that we have introduced since we have been in office have been far more effective in curbing behaviour in bank boardrooms than the bank payroll tax.

Let me deal now with youth unemployment, which is highlighted in the Labour amendment. The Government have introduced a wide range of measures to tackle the problem. We have improved the support that is available to jobseekers. We have introduced a more flexible jobseeker’s allowance regime better to support a jobseeker in the search for work. In June last year, we launched the Work programme, providing specialist support over the next

18 Apr 2012 : Column 409

five years to help to support the longer-term unemployed and help the most vulnerable jobseekers to keep in touch with the labour market. Later this year, we will run a pilot to find the best way to introduce a programme of enterprise loans to help young people to set up and grow their own business. We are taking other actions to tackle the problem.

We are strongly of the view that it is right that banks should make a fair contribution that reflects the risks they pose to the UK financial system and the wider economy. That is why we introduced the permanent bank levy—a move that Labour Members chose to disregard when they were in government. We need to balance fairness and competiveness and raise the revenue that we need. The actions that we are taking demonstrate that we have a clear strategy in place to enable economic recovery and create jobs. The bank levy is the right course of action. I ask the hon. Member for Pontypridd to withdraw his amendment, and I move that clause 209 and schedule 33 stand part of the Bill.

Owen Smith: There are still 1 million unemployed young people in this country. That is the highest rate since records began. Long-term youth unemployment is growing as never before. In my constituency of Pontypridd, there has been a 333% increase in long-term youth unemployment in the last year alone. The point of the amendment is to highlight that problem in the real economy. We are trying to connect this out-of-touch Government to the reality of youth unemployment, and to get them to do something to tackle it and to get growth in our economy. I have not been persuaded to withdraw the amendment and we will press it to a vote.

Question put, That the amendment be made.

The Committee proceeded to a Division.

The Temporary Chair (Sir Roger Gale): I ask the Serjeant at Arms to investigate the delay in the No Lobby.

The Committee having divided:

Ayes 251, Noes 322.

Division No. 519]

[5.49 pm


Abbott, Ms Diane

Abrahams, Debbie

Ainsworth, rh Mr Bob

Alexander, rh Mr Douglas

Alexander, Heidi

Ali, Rushanara

Allen, Mr Graham

Anderson, Mr David

Ashworth, Jonathan

Austin, Ian

Bailey, Mr Adrian

Bain, Mr William

Balls, rh Ed

Banks, Gordon

Benn, rh Hilary

Berger, Luciana

Betts, Mr Clive

Blackman-Woods, Roberta

Blenkinsop, Tom

Blomfield, Paul

Blunkett, rh Mr David

Bradshaw, rh Mr Ben

Brennan, Kevin

Brown, Lyn

Brown, rh Mr Nicholas

Brown, Mr Russell

Bryant, Chris

Buck, Ms Karen

Burden, Richard

Burnham, rh Andy

Byrne, rh Mr Liam

Campbell, Mr Alan

Campbell, Mr Ronnie

Caton, Martin

Chapman, Mrs Jenny

Clark, Katy

Clarke, rh Mr Tom

Clwyd, rh Ann

Coaker, Vernon

Coffey, Ann

Connarty, Michael

Cooper, Rosie

Cooper, rh Yvette

Corbyn, Jeremy

Crausby, Mr David

Creagh, Mary

Creasy, Stella

Cruddas, Jon

Cryer, John

Cunningham, Alex

Cunningham, Mr Jim

Cunningham, Tony

Curran, Margaret

Dakin, Nic

Danczuk, Simon

Darling, rh Mr Alistair

David, Mr Wayne

Davidson, Mr Ian

Davies, Geraint

De Piero, Gloria

Denham, rh Mr John

Dobbin, Jim

Dobson, rh Frank

Docherty, Thomas

Dodds, rh Mr Nigel

Donaldson, rh Mr Jeffrey M.

Donohoe, Mr Brian H.

Doran, Mr Frank

Dowd, Jim

Doyle, Gemma

Dromey, Jack

Dugher, Michael

Durkan, Mark

Eagle, Ms Angela

Eagle, Maria

Edwards, Jonathan

Efford, Clive

Ellman, Mrs Louise

Engel, Natascha

Esterson, Bill

Evans, Chris

Farrelly, Paul

Fitzpatrick, Jim

Flello, Robert

Flint, rh Caroline

Flynn, Paul

Francis, Dr Hywel

Galloway, George

Gapes, Mike

Gardiner, Barry

Gilmore, Sheila

Glass, Pat

Glindon, Mrs Mary

Goggins, rh Paul

Goodman, Helen

Greatrex, Tom

Green, Kate

Greenwood, Lilian

Griffith, Nia

Gwynne, Andrew

Hain, rh Mr Peter

Hamilton, Mr David

Hamilton, Fabian

Hanson, rh Mr David

Harman, rh Ms Harriet

Harris, Mr Tom

Havard, Mr Dai

Healey, rh John

Hendrick, Mark

Hepburn, Mr Stephen

Hermon, Lady

Heyes, David

Hillier, Meg

Hilling, Julie

Hodge, rh Margaret

Hodgson, Mrs Sharon

Hoey, Kate

Hopkins, Kelvin

Hosie, Stewart

Howarth, rh Mr George

Hunt, Tristram

Irranca-Davies, Huw

Jackson, Glenda

James, Mrs Siân C.

Jamieson, Cathy

Jarvis, Dan

Johnson, rh Alan

Johnson, Diana

Jones, Graham

Jones, Helen

Jones, Susan Elan

Jowell, rh Tessa

Kaufman, rh Sir Gerald

Keeley, Barbara

Kendall, Liz

Khan, rh Sadiq

Lammy, rh Mr David

Lavery, Ian

Lazarowicz, Mark

Leslie, Chris

Lewis, Mr Ivan

Lloyd, Tony

Llwyd, rh Mr Elfyn

Long, Naomi

Love, Mr Andrew

Lucas, Caroline

Lucas, Ian

MacNeil, Mr Angus Brendan

MacShane, rh Mr Denis

Mahmood, Shabana

Malhotra, Seema

Mann, John

Marsden, Mr Gordon

McCann, Mr Michael

McCarthy, Kerry

McClymont, Gregg

McDonagh, Siobhain

McDonnell, Dr Alasdair

McDonnell, John

McFadden, rh Mr Pat

McGovern, Alison

McGovern, Jim

McGuire, rh Mrs Anne

McKechin, Ann

McKenzie, Mr Iain

McKinnell, Catherine

Meacher, rh Mr Michael

Meale, Sir Alan

Mearns, Ian

Michael, rh Alun

Miliband, rh David

Miliband, rh Edward

Miller, Andrew

Mitchell, Austin

Moon, Mrs Madeleine

Morden, Jessica

Morrice, Graeme


Morris, Grahame M.


Mudie, Mr George

Munn, Meg

Murphy, rh Mr Jim

Murphy, rh Paul

Murray, Ian

Nandy, Lisa

Nash, Pamela

O'Donnell, Fiona

Onwurah, Chi

Osborne, Sandra

Owen, Albert

Paisley, Ian

Pearce, Teresa

Perkins, Toby

Phillipson, Bridget

Pound, Stephen

Qureshi, Yasmin

Raynsford, rh Mr Nick

Reeves, Rachel

Reynolds, Jonathan

Riordan, Mrs Linda

Robertson, Angus

Robertson, John

Robinson, Mr Geoffrey

Rotheram, Steve

Roy, Mr Frank

Roy, Lindsay

Ruddock, rh Dame Joan

Sarwar, Anas

Seabeck, Alison

Shannon, Jim

Sharma, Mr Virendra

Sheerman, Mr Barry

Sheridan, Jim

Shuker, Gavin

Skinner, Mr Dennis

Slaughter, Mr Andy

Smith, rh Mr Andrew

Smith, Angela

Smith, Nick

Smith, Owen

Spellar, rh Mr John

Straw, rh Mr Jack

Stringer, Graham

Sutcliffe, Mr Gerry

Tami, Mark

Thomas, Mr Gareth

Thornberry, Emily

Timms, rh Stephen

Trickett, Jon

Turner, Karl

Twigg, Derek

Twigg, Stephen

Umunna, Mr Chuka

Vaz, rh Keith

Vaz, Valerie

Walley, Joan

Watson, Mr Tom

Watts, Mr Dave

Weir, Mr Mike

Whiteford, Dr Eilidh

Whitehead, Dr Alan

Wicks, rh Malcolm

Williamson, Chris

Wilson, Phil

Wilson, Sammy

Winnick, Mr David

Winterton, rh Ms Rosie

Wishart, Pete

Woodcock, John

Woodward, rh Mr Shaun

Wright, David

Wright, Mr Iain

Tellers for the Ayes:

Chris Ruane and

Yvonne Fovargue


Adams, Nigel

Afriyie, Adam

Aldous, Peter

Alexander, rh Danny

Amess, Mr David

Andrew, Stuart

Arbuthnot, rh Mr James

Bacon, Mr Richard

Baker, Norman

Baldry, Tony

Baldwin, Harriett

Barclay, Stephen

Baron, Mr John

Barwell, Gavin

Bebb, Guto

Beith, rh Sir Alan

Benyon, Richard

Beresford, Sir Paul

Berry, Jake

Bingham, Andrew

Binley, Mr Brian

Birtwistle, Gordon

Blackman, Bob

Blackwood, Nicola

Blunt, Mr Crispin

Boles, Nick

Bottomley, Sir Peter

Bradley, Karen

Brady, Mr Graham

Brake, rh Tom

Bray, Angie

Brazier, Mr Julian

Bridgen, Andrew

Brine, Steve

Brokenshire, James

Browne, Mr Jeremy

Bruce, Fiona

Bruce, rh Malcolm

Buckland, Mr Robert

Burley, Mr Aidan

Burns, Conor

Burns, rh Mr Simon

Burrowes, Mr David

Burstow, Paul

Burt, Alistair

Burt, Lorely

Byles, Dan

Cairns, Alun

Carmichael, rh Mr Alistair

Carmichael, Neil

Carswell, Mr Douglas

Cash, Mr William

Chishti, Rehman

Chope, Mr Christopher

Clappison, Mr James

Clark, rh Greg

Clegg, rh Mr Nick

Clifton-Brown, Geoffrey

Coffey, Dr Thérèse

Collins, Damian

Colvile, Oliver

Crabb, Stephen

Crockart, Mike

Crouch, Tracey

Davey, rh Mr Edward

Davies, David T. C.


Davies, Glyn

Davies, Philip

Davis, rh Mr David

de Bois, Nick

Dinenage, Caroline

Djanogly, Mr Jonathan

Dorrell, rh Mr Stephen

Dorries, Nadine

Doyle-Price, Jackie

Drax, Richard

Duddridge, James

Duncan, rh Mr Alan

Duncan Smith, rh Mr Iain

Dunne, Mr Philip

Ellis, Michael

Ellison, Jane

Ellwood, Mr Tobias

Elphicke, Charlie

Eustice, George

Evans, Graham

Evans, Jonathan

Evennett, Mr David

Fabricant, Michael

Fallon, Michael

Field, Mark

Foster, rh Mr Don

Fox, rh Dr Liam

Francois, rh Mr Mark

Freeman, George

Freer, Mike

Fullbrook, Lorraine

Garnier, Mark

Gauke, Mr David

George, Andrew

Gibb, Mr Nick

Gilbert, Stephen

Gillan, rh Mrs Cheryl

Glen, John

Goldsmith, Zac

Goodwill, Mr Robert

Gove, rh Michael

Graham, Richard

Grant, Mrs Helen

Gray, Mr James

Grayling, rh Chris

Green, Damian

Greening, rh Justine

Grieve, rh Mr Dominic

Griffiths, Andrew

Gummer, Ben

Gyimah, Mr Sam

Halfon, Robert

Hames, Duncan

Hammond, Stephen

Hancock, Matthew

Hancock, Mr Mike

Hands, Greg

Harper, Mr Mark

Harrington, Richard

Harris, Rebecca

Hart, Simon

Harvey, Nick

Hayes, Mr John

Heald, Oliver

Heath, Mr David

Heaton-Harris, Chris

Hemming, John

Henderson, Gordon

Hendry, Charles

Herbert, rh Nick

Hinds, Damian

Hoban, Mr Mark

Hollingbery, George

Hollobone, Mr Philip

Hopkins, Kris

Howell, John

Hughes, rh Simon

Hunt, rh Mr Jeremy

Hurd, Mr Nick

Jackson, Mr Stewart

James, Margot

Javid, Sajid

Johnson, Gareth

Johnson, Joseph

Jones, Andrew

Jones, Mr David

Jones, Mr Marcus

Kawczynski, Daniel

Kelly, Chris

Kirby, Simon

Knight, rh Mr Greg

Kwarteng, Kwasi

Laing, Mrs Eleanor

Lancaster, Mark

Lansley, rh Mr Andrew

Laws, rh Mr David

Leadsom, Andrea

Lee, Jessica

Lee, Dr Phillip

Lefroy, Jeremy

Leigh, Mr Edward

Leslie, Charlotte

Letwin, rh Mr Oliver

Lewis, Brandon

Liddell-Grainger, Mr Ian

Lidington, rh Mr David

Lilley, rh Mr Peter

Lloyd, Stephen

Lopresti, Jack

Lord, Jonathan

Loughton, Tim

Luff, Peter

Lumley, Karen

Macleod, Mary

Main, Mrs Anne

May, rh Mrs Theresa

Maynard, Paul

McCartney, Jason

McCartney, Karl

McIntosh, Miss Anne

McLoughlin, rh Mr Patrick

McPartland, Stephen

McVey, Esther

Mensch, Louise

Menzies, Mark

Mercer, Patrick

Metcalfe, Stephen

Miller, Maria

Mills, Nigel

Milton, Anne

Mitchell, rh Mr Andrew

Moore, rh Michael

Mordaunt, Penny

Morgan, Nicky

Morris, Anne Marie

Morris, David

Morris, James

Mosley, Stephen

Mowat, David

Mundell, rh David

Munt, Tessa

Murray, Sheryll

Murrison, Dr Andrew

Neill, Robert

Newmark, Mr Brooks

Newton, Sarah

Nokes, Caroline

Norman, Jesse

Nuttall, Mr David

O'Brien, Mr Stephen

Offord, Mr Matthew

Ollerenshaw, Eric

Opperman, Guy

Osborne, rh Mr George

Ottaway, Richard

Paice, rh Mr James

Parish, Neil

Patel, Priti

Paterson, rh Mr Owen

Pawsey, Mark

Penning, Mike

Penrose, John

Percy, Andrew

Perry, Claire

Phillips, Stephen

Pickles, rh Mr Eric

Pincher, Christopher

Poulter, Dr Daniel

Prisk, Mr Mark

Pritchard, Mark

Pugh, John

Raab, Mr Dominic

Randall, rh Mr John

Reckless, Mark

Redwood, rh Mr John

Rees-Mogg, Jacob

Reid, Mr Alan

Rifkind, rh Sir Malcolm

Robathan, rh Mr Andrew

Robertson, Hugh

Robertson, Mr Laurence

Rogerson, Dan

Rosindell, Andrew

Rudd, Amber

Ruffley, Mr David

Russell, Sir Bob

Rutley, David

Sanders, Mr Adrian

Sandys, Laura

Scott, Mr Lee

Selous, Andrew

Shapps, rh Grant

Sharma, Alok

Shelbrooke, Alec

Shepherd, Mr Richard

Simmonds, Mark

Skidmore, Chris

Smith, Miss Chloe

Smith, Henry

Smith, Julian

Soames, rh Nicholas

Soubry, Anna

Spencer, Mr Mark

Stephenson, Andrew

Stevenson, John

Stewart, Bob

Stewart, Iain

Stewart, Rory

Streeter, Mr Gary

Stride, Mel

Stuart, Mr Graham

Stunell, Andrew

Sturdy, Julian

Swales, Ian

Swayne, rh Mr Desmond

Swinson, Jo

Swire, rh Mr Hugo

Syms, Mr Robert

Tapsell, rh Sir Peter

Teather, Sarah

Thurso, John

Timpson, Mr Edward

Tomlinson, Justin

Tredinnick, David

Truss, Elizabeth

Turner, Mr Andrew

Tyrie, Mr Andrew

Uppal, Paul

Vaizey, Mr Edward

Vara, Mr Shailesh

Vickers, Martin

Villiers, rh Mrs Theresa

Walker, Mr Charles

Walker, Mr Robin

Wallace, Mr Ben

Walter, Mr Robert

Ward, Mr David

Watkinson, Angela

Webb, Steve

Wharton, James

White, Chris

Whittaker, Craig

Whittingdale, Mr John

Wiggin, Bill

Willetts, rh Mr David

Williams, Mr Mark

Williams, Roger

Williams, Stephen

Williamson, Gavin

Willott, Jenny

Wilson, Mr Rob

Wollaston, Dr Sarah

Wright, Simon

Yeo, Mr Tim

Young, rh Sir George

Zahawi, Nadhim

Tellers for the Noes:

Jeremy Wright and

Mark Hunter

Question accordingly negatived.

18 Apr 2012 : Column 410

18 Apr 2012 : Column 411

18 Apr 2012 : Column 412

18 Apr 2012 : Column 413

Clause 209 ordered to stand part of the Bill.

Schedule 33 agreed to.

New Clause 1

Value Added Tax: limitation on new orders

‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 which:

(a) Amends the current definition of “hot food” in the Act, or

(b) Amends the Act to limit the zero rate to the supply of caravans used for residential purposes.’.—(Cathy Jamieson.)

Brought up, and read the First time.

18 Apr 2012 : Column 414

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): I beg to move, That the clause be read a Second time.

The Temporary Chair (Sir Roger Gale): With this it will be convenient to discuss the following: new clause 2—Review of VAT Exemption for small vehicles—

‘The Treasury shall, within two months of Royal Assent to this Act, lay before Parliament a report on the effect on the availability of transport services on the VAT exemptions for small vehicles.’.

New clause 3—VAT impact of changes—

‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has fully reviewed the impact of those changes on jobs, living standards and businesses and placed the review in the Library of the House of Commons.’.

New clause 4—Definition of ‘hot food’—

‘No new Order shall be made under section 30(4) of the Value Added Tax Act 1994 which amends the current definition of “hot food” in the Act.’.

New clause 5—Value Added Tax: baked products—

‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 which shall affect baked products when no attempt is made to keep the product hot for consumption.’.

New clause 6—VAT on caravans—

‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 which amends the Act to apply to holiday caravans that are currently zero rated.’.

New clause 7—VAT: protected buildings—

‘No new Order shall be made under section 30(4) of the Value Added Tax Act 1994 which amends the current definition of “protected building” in the Act.’.

New clause 8 has not been selected because it is outside the scope of the Bill. I indicate to the Committee that it will be for my successor in the Chair, the Second Deputy Chairman of Ways and Means, to determine, once she has heard more of the debate, whether to call any of the new clauses other than new clause 1.

Cathy Jamieson: It is a pleasure to follow some excellent speeches. As we heard earlier, the harsh reality of the Budget is that it has done nothing to give Britain the jobs and growth we desperately need. We have heard how it has failed—[Interruption.]

The Temporary Chair: Order. I am sorry to interrupt the hon. Lady. Will Members leaving the Chamber please do so quietly? I wish to hear the debate.

Cathy Jamieson: Thank you, Sir Roger. That gives me the opportunity to repeat, for those unable to hear because of the conversations, my point about the harsh reality of the Budget, which has done nothing to give Britain the jobs and growth we desperately need, and about how it fails the fairness test. It has done nothing to help support families and pensioners on modest and middle incomes. We will discuss that further tomorrow so I shall not dwell on it now. It would, of course, be outwith the scope of the new clauses. I shall only say that families are already finding out just what the Government’s decisions will mean for their household budgets. As we will hear, businesses are also now finding out that the botched Budget makes no economic sense for them either.

18 Apr 2012 : Column 415

There was a time when people might have given the Chancellor some credit for his strategic brain. Some on middle incomes and small businesses might even have given him the benefit of the doubt on economic policy, notwithstanding our many warnings about cuts that go too far and too fast. They might have given him the benefit of the doubt even if they did not completely agree with everything he was doing. But how times change. The Chancellor has had several weeks of torrid headlines—The Mirror: “Half-baked Tory tax a mistake-and-bake from Osborne and co”; The Sun: “PM David Cameron is urged to show leadership over pasty-gate”; The Guardian: “‘Pasty tax’ is the last thing people need”; the Evening Standard: “Heston says pasty tax will stop artisan bakers earning a crust”; and even “Tax on beloved Cornish pasties sparks furore in Britain” in USA Today and “‘Pasty tax’ row heats up for British PM” on the al-Jazeera website.

Mr Redwood: Is the hon. Lady at all worried that the fine reputation of the pasty will be damaged by so many MPs trying to associate themselves with it and get their ratings up as a consequence?

Cathy Jamieson: I am sure that the pasty industry is looking on as we speak and will want to know exactly which MPs have gone and sampled the local delicacies in whichever part of the UK they happen to live.

Those weeks of torrid headlines have led us to the current situation. There is now a pasty petition, and there has apparently been a pasty summit, while Greggs is planning a pasty protest march on Downing street to plead with the Prime Minister to step in personally and kill off the hated pasty tax.

Brandon Lewis rose—

Ed Balls (Morley and Outwood) (Lab/Co-op): You’ve had too many pasties.

Brandon Lewis: The shadow Chancellor is quite right. Does the hon. Lady not agree that in removing this VAT anomaly, it is only fair to protect the interests of the fish and chip mongers in places such as Great Yarmouth?

Cathy Jamieson: The interests of fish and chip shops have been raised on a number of occasions in this debate, and I am sure that plenty of people will want to patronise those local establishments. However, that does not get us away from the fact that the introduction of this measure has been an absolute shambles.

Matthew Hancock (West Suffolk) (Con): Will the hon. Lady give way?

Cathy Jamieson: No.

Ed Balls: No, no—always take him.

Cathy Jamieson: I give way to the hon. Gentleman.

Matthew Hancock: I am grateful to the hon. Lady and to the shadow Chancellor for encouraging her to give way. I have a simple question: is Labour going to reintroduce this anomaly, should it ever win an election?

18 Apr 2012 : Column 416

Cathy Jamieson: I am almost disappointed that I took that intervention, if that is the best that the hon. Gentleman can come up with.

We on the Opposition Benches like to be helpful, so we are going to give the Government the opportunity to step back from the current mess, which is entirely of their own making, and drop these ill-thought-out plans, which have led to more questions being asked about hot and cold snacks than anyone could have dreamed were possible.

Before I move on, and before anyone asks me when I last ate a pasty—or a bridie, as it would be in Scotland—I have a confession to make. I am one of Parliament’s three vegan MPs, so the delights—[ Interruption. ] I hear calls of “Resign!” The delights of the Greggs steak bake have passed me by, although it is a firm favourite with my son, and the cheese and onion bridie is a staple component of my husband’s diet. However, I am very grateful to Brownings the bakers, in Kilmarnock in my constituency, which, in advance of Kilmarnock football club’s recent cup final triumph, created a vegan Killie pie, to mimic the award-winning Killie pie, so that I would not go hungry—some Ayrshire colleagues on the Government Benches can see where this is going—while other Kilmarnock supporters were enjoying that award-winning local delicacy.

When I went along to the bakery to receive the pies, it never occurred to me that such delicacies would become the hot—or cold—political topic only weeks later. We have seen quotation after quotation from bakeries and other producers of hot snacks, warning the Government of the problems that the tax will create for them. Indeed, who would have thought that the Treasury Committee would be taking evidence from the Chancellor on what constitutes an ambient temperature? Efforts on Second Reading to clarify exactly what “the ambient temperature” means did not elicit much more information, although we did learn that the hon. Member for North East Somerset (Jacob Rees-Mogg), who I see is in his place, prefers sausage rolls to pasties. I am sure that that was very useful information, and it was interesting to find it out, but it threw very little light on the rest of the subject.

Notwithstanding the Chancellor’s attempt to explain his rationale on hot takeaways to the Treasury Committee—which makes for fascinating reading—we are still struggling to find out whether the hot roast chicken selected in the supermarket by my right hon. Friend the Member for Stirling (Mrs McGuire), to which she referred on Second Reading, would be liable for VAT if it had cooled down by the time she reached the checkout.

6.15 pm

Mrs Anne Main (St Albans) (Con): In successful pasty shops such as Pengenna’s in Bude, the pasties come out of the oven and people eat them hot straight away. They are not being kept hot; they are being delivered hot and fresh from the oven. Does the hon. Lady share my concern that that represents an anomaly?

Cathy Jamieson: The hon. Lady makes a good point, and it will be interesting to see how she votes at the end of the debate.

18 Apr 2012 : Column 417

If I were to go back to Brownings, my local baker, and purchase two vegan Killie pies, one to eat there and then and one to take home for another day, would one or both be VATable, to use the term the Chancellor used before the Select Committee?

Mr Ben Wallace (Wyre and Preston North) (Con) rose—

Cathy Jamieson: I will give way—I was going to say “to my hon. Friend”, but he is actually my former colleague from another place.

Mr Wallace: The hon. Lady will know that Kilmarnock has some of the best fish and chip shops in Scotland. If she were not a vegan, she would certainly know that. Is she really saying that her party wants to maintain the competitive disadvantage that her local fish and chip shops have? Is she really supporting the big supermarkets and chains that will put those small chip shops out of business by ensuring that that loophole is exploited?

Cathy Jamieson: I am sure that the hon. Gentleman patronises many of those chip shops on his regular visits to my part of the world—and sometimes to my constituency. I hope that he will go to Brownings the bakers and have a Killie pie, if he has not already had one. The point that he makes does not negate the fact that it is primarily the smaller bakers—the so-called artisan bakeries and those that produce traditional products—that are going to have a problem as a result of this tax.

I want to return to my point about whether one or both of my two vegan Killie pies would be VATable. I am unsure whether “to VAT” is actually a verb that would provide us with the word “VATable”. I am, however, aware that the word “ambient” has its roots in the Latin word for “going round”. The Chancellor’s reputation, if not his ambitions for the future, seems to be going round in ever-decreasing circles as a result of this furore.

The Treasury Committee employed its usual straightforward way with words when it stated:

“We recommend that, where changes to complex areas of taxation are proposed, the greatest possible supporting material be published to allow for greater scrutiny of the possibility of unintended consequences.”

Those are extremely wise words—[ Interruption. ] I am happy to take an intervention from those Government Members who are mocking the wise words of the Treasury Committee.

Sir Alan Beith (Berwick-upon-Tweed) (LD): Am I to understand from what the hon. Lady is saying that the Labour party is making a costed commitment to remove the tax from pasties, and to ensure that there is no anomaly by also removing it from fish and chips and from every other foodstuff as well?

Cathy Jamieson: I have to confess that, the last time I looked at the Labour party manifesto, it did not mention fish and chips, or pasties, or bridies. We are absolutely clear that this tax will do nothing to support those local industries and that it will place yet another burden on hard-pressed customers.

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Julie Hilling (Bolton West) (Lab): Does my hon. Friend agree with John Carr, the managing director of Carr’s pasties in Bolton, that when VAT was introduced on food in 1980, it was a total mess? It meant, for example, that biscuits were deemed a luxury although cream cakes were not. Will not this change in VAT create an even bigger mess? Is it not a ridiculous measure to have introduced?

Cathy Jamieson: I thank my hon. Friend for that intervention. I want to give plenty of opportunity for Back Benchers to contribute to the debate. It is not just a debate about pasties; it is also about caravans. I know that many Members will wish to speak on that issue because of its importance for their local industries. [Interruption.] I would be happy to take an intervention from Ministers or from one of those senior Tory MPs quoted as having met the Chancellor today to lobby on the issue of caravans. Does anyone want to give us an update on that? No, I see no takers at the moment. Perhaps we will hear about it later. [Interruption.]

The Temporary Chair (Sir Roger Gale): Order. I am sorry to interrupt the hon. Lady again. The hon. Lady must be heard, and she really should not have to shout from the Dispatch Box to put her message across. Many Members on both sides of the Committee want to participate in the debate. Whether or not they are called will depend to some extent on their behaviour in the Chamber, and it will also depend on the amount of time available to us.

Cathy Jamieson: Thank you, Sir Roger. I will do my best to bring my remarks to a speedy conclusion so that others can contribute.

Let me briefly mention other issues. I have already mentioned caravans, but building work on churches is also important, and I know that some colleagues will speak about it later. One other area, if I can be pardoned a very bad pun, not yet highlighted in the headlines is the whole issue of hairdressers’ chairs. I mention it simply because the Government’s proposal shows once again a lack of understanding of the operation of many small businesses.

People and women—and it is often young women—starting out on their hairdressing careers, perhaps on their first business opportunity, often rent a chair in a larger salon. I see some nods of agreement from Government Members. It is welcome if some of them understand the issue, but it does nothing at all to help those people setting out on their first business venture if they suddenly find that they are going to have to pay more costs. The National Hairdressers Federation has highlighted further anomalies. Conservative Members might not be aware of it, but it is common practice in hairdressers’ businesses to rent out space not only to other hairdressers, but to others in the beauty and therapy professions. The anomalies highlighted by the NHF are made worse by the Government’s proposals.

David Morris (Morecambe and Lunesdale) (Con): I can tell the hon. Lady of a loophole that has needed closing for many years. Although it is possible to rent a chair in the hairdressing industry, the problem has been that VAT is levied on the premises. I think it is right to place it on the individual because these people operate individually.

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Cathy Jamieson: I am slightly surprised to hear that from the hon. Gentleman. All I wanted to do in raising this particular issue was to make the Government recognise that the consultation, which has been brought forward, amounted to too little, too late, and that it would have been far better if it had been done earlier.

Back Benchers want to contribute, so I shall close in order to give them the opportunity to speak. It would be useful, however, if some Conservative Members were able to give us an update on the meeting apparently taking place today. Will there be a change of position? Will the Government withdraw, particularly from the caravan tax, but also from the other ill-thought-out taxes? Once again, I see no one seeking to intervene on this particular point, so I shall finish and allow others to raise further issues.

Peter Aldous (Waveney) (Con): I am grateful to be called to speak. I shall restrict my comments to new clause 6 and the proposed application of VAT to the sale of static holiday caravans from 1 October. My interest is a constituency one, as I fear that the impact of the measure will be far greater than HMRC has estimated.

I have received representations and expressions of interest from a variety of parties. These include Hoseasons, one of the largest holiday providers in the UK, which is based in Lowestoft in my constituency; and five park operators, including the chairman of my own constituency Conservative association, who has herself written to the Treasury and a number of other Members. Small and medium-sized enterprises, including painters and decorators, and a bank are also concerned about the impact of the proposal on business viability.

Let me make three observations. First, I fear that HMRC’s assessment of the impact of the change takes full account of neither the whole supply chain serving the industry, nor the fact that the industry is concentrated in specific geographical areas that will be hit very hard. Some of those areas are pockets of deprivation and unemployment, and many are coastal communities such as my constituency, where tourism is a vital component of the local economy.

The supply chain includes manufacturers who are located almost exclusively in the UK—mainly in the Humberside area—wholesalers, and park operators. In recent years, the sale of static caravans has become a vital part of park operators’ businesses. Without such sales the future of some businesses will be at best uncertain, while others will cut both staff and the reinvestment in facilities that is so important if they are to continue to attract customers and ensure their own financial viability. Trading conditions have been very difficult for those operators in recent years, and the introduction of the new tax on 1 October, following so soon after the imposition of VAT on pitch fees, rates, and water and sewerage bills on 1 January, would contribute to a double whammy.

I am especially concerned about the fact that HMRC’s assessment takes no account of the numerous SMEs that work in the parks. There are builders, decorators, plumbers, electricians, people who fit carpets and curtains, and people who service plant and equipment. We should also bear in mind that many of those who work in the parks—admittedly on a seasonal basis—are young people gaining their first experience of work. An unintended

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consequence of the measure could, in some cases, be the removal of that vital first rung on the employment ladder.

Mr David Hanson (Delyn) (Lab): In my part of north Wales, the projected 30% drop in sales shown by the Government’s own figures will have an impact on new purchases. Those who come to north Wales do not just buy static holiday homes; they buy cars and go to restaurants, pubs and shops, and their income and expenditure help to boost our economy. That will hit the hon. Gentleman’s constituency as well.

Peter Aldous: I shall come to that issue in a moment.

My second point is that HMRC’s analysis fails to take account of the vital role played by static caravan owners in a local economy such as that in Waveney. They are, in many respects, the “anchor tenant” for the whole tourism industry. They come to stay in the area for most weekends, and they do not limit their visits to the summer season. They spend money in local shops, restaurants and pubs, visit the many day attractions in my area such as Pleasurewood Hills and Africa Alive, or spend a day on the beach or boating on the Broads. A reduction in their numbers would have a significant knock-on effect on the many businesses in the area.

Finally, I believe that the rationale for the introduction of the tax is flawed. It is claimed that it addresses an anomaly, as touring caravans are subject to VAT while static caravans are not. However, the industry has come a long way since 1973, when the VAT exemption was first made, and I believe that today’s static caravan has more in common with a holiday home than with a mobile caravan. Static caravans are more like second homes in terms of their facilities and the nature of the accommodation, the investment that their owners have made in them, and the way in which they are used—not just for once-a-year holidays, but for regular visits throughout the year.

Albert Owen (Ynys Môn) (Lab): Another consequence of the tax is that those who currently buy caravans to use as second homes would actually buy second homes. That would raise the price of affordable homes, especially in rural areas such as the hon. Gentleman’s constituency.

Peter Aldous: I am not sure that I entirely agree with the hon. Gentleman. The problem with many second homes is that they are very expensive. What worries me that, certainly in my area, people would go abroad for holidays. They might even buy a villa in Spain, which really would be cheap, and the whole tourism industry would be affected.

In many respects, the current tax treatment of second homes and statics is, by chance, similar. The former pay stamp duty, while the later pay VAT on movable items only. To change that balance would unfairly penalise this group of people. Many of them cannot afford a second home, yet they are similar to second-home owners in so many ways. Such a move would be regressive in taxation terms.

In summary, I believe that the impact of this proposal will be far greater than HMRC’s assessment implies. It will have a significant negative effect on the economy and on jobs in specific locations around the country, including my constituency. Further, I question whether

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the anomaly it is intended to address actually exists. I therefore urge the Government to think again, and to allow a vital industry to continue to play a key role in securing the economic recovery.

6.30 pm

Alan Johnson (Kingston upon Hull West and Hessle) (Lab): I join the hon. Member for Waveney (Peter Aldous) in supporting new clause 6, and I wish to make a few brief points.

First, on the anomaly issue, in the early ’70s a Conservative Chancellor looked at towable caravans, which are VATable, and residential caravans, which are not, and decided that so-called static caravans should be classified as residential property and therefore not be subject to VAT. In the ensuing 40 years, every Chancellor, both Labour and Conservative, has made the same decision.

In the global recession of 2008, the caravan industry was hit hard. In my neck of the woods, east Yorkshire, we know how difficult that was. I took a delegation to meet the well-known caravan user Lord Mandelson, to make the argument that the industry needed a bit of help from his Department—which was not at that time known as the Department for Business, Innovation and Skills. [Interruption.] Yes, yachts were his main form of holiday. In the entire history of the caravan industry, so great has been its feeling that it could survive independently without Government help that not a single official in the whole vast empire of that Department knew anything about it. Frankly, apart from a bit of tinkering around the edges of the car scrappage scheme, there was not much that we could do for the caravan industry. As a result, companies went bust, people went bankrupt and the supply chain was hit very hard.

Through its own efforts, however, the industry is now getting its head back above water. Atlas Leisure Homes in my constituency went into receivership in 2008 and lost 250 jobs. It has fought its way back and now employs 120 people in an area that has been badly hit by unemployment. Companies in the supply chain have had similar experiences. Meadley International Transport is involved in distribution. It is run by a father, his son and his daughter. He put in the whole of his pension and all his assets to get Meadley through the global downturn, and it, too, is now getting its head back above water.

This measure will destroy Atlas and Meadley. It will destroy small businesses across the country. It will destroy an industry that is almost the last purely British success story in the manufacturing sector. Some 95% of UK caravans are made in this region. In 2008 and 2009, people did not decide not to buy a caravan; they deferred that purchase. If those companies had gone out of business, German and Dutch firms would now be prospering from the fact that a market is developing again.

Karl Turner (Kingston upon Hull East) (Lab): As my right hon. Friend will know, I have three such manufacturers in my constituency. One of the biggest is Willerby Holiday Homes. It is based in east Hull and employs 700 people. I spoke to its chief executive today. He tells me the firm has been operating a three-day week since the banking crash in 2007, but he hopes it may return to

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full-time work in the next few months. He says it is ridiculous to expect that to be able to happen if this VAT measure is introduced.

Alan Johnson: My hon. Friend raises a crucial point. I say the following to those on the Treasury Bench: this was meant to be a Budget for manufacturing; it was meant to be a Budget for growth in the British economy; it was meant to be a Budget that ended some of the anomalies in the north-south divide.

How can we go ahead with this measure, given that hon. Members in all parts of the House know the effect it will have on jobs and British manufacturing, and know that the savings of about £40 million to £45 million set out in the Treasury’s own document will be far exceeded by the costs in unemployment, waste and redundancies throughout the country? How can the Treasury possibly decide, after 40 years of looking at this, that this is the year in which it needs to put the price of caravans up? Again, its own figures show that that will lead to a 30% reduction in demand, although the National Caravan Council says that the real figure will be more like 75% or 80%. I believe Treasury officials now understand that their own analysis was deeply flawed.

Diana Johnson (Kingston upon Hull North) (Lab): As a Hull MP, I wish to stress that we are facing job losses in so many private sector businesses, from BAE Systems, Comet and P&O to many others across the city. It sounds as if we may end up with thousands more job losses as a result of this measure, and we really cannot afford to see that happen in our city.

Alan Johnson: My hon. Friend is right because, on the Treasury’s assessment, more than 1,000 jobs are going to be lost. Some 90% of this manufacturing industry is based in east Yorkshire. I say to those on the Treasury Bench that this is not an industry that has asked for help from the Government—indeed, in 2008-09, it had to pull itself up by its bootstraps. Having done that, this is not a question of its asking the Government for any help; it is about asking the Treasury and the Government not to inflict on that industry a possible death blow to a great British manufacturing success story.

Mr Graham Stuart (Beverley and Holderness) (Con): It is my pleasure to follow the other speakers. Like all those who have spoken so far, apart from those on the Front Bench, I shall speak to new clause 6 and the proposal that the Finance Bill should set out that this House will not approve, in a future statutory instrument, the imposition of VAT on static caravans. So much has already been said, but I must point out that my constituency contains ABI, a major manufacturer in the heart of Beverley; companies in the immediate area that are part of the supply chain; and a series of parks along the Holderness coast that depend for their profits on the sales of static homes, as we discover when we speak to the owners.

The Treasury’s assessment of the impact of introducing the VAT is that there would be a 30% reduction in sales. When we think about the employers in the various constituencies in Hull, in my constituency and in those of my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for East Yorkshire (Mr Knight), we find that so many companies are

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involved. More than 90% of the production of static caravans in the UK is concentrated in east Yorkshire and, as has just been said, so successful is this industry in the UK that nearly all the caravans that are bought and installed in the UK are built there. So my constituency has a great concentration of all those who may suffer from a 30% reduction in demand—manufacturers and all the people who work in that area, suppliers, and the parks themselves.

Glyn Davies (Montgomeryshire) (Con): I associate myself with the concern that my hon. Friend is showing and that many of my constituents also show. Does he share my concern about the disruption around the introduction date that will be caused to the manufacturing side of the industry? Does he share my hope that in the intervening period Ministers will examine ways in which they can limit that disruption?

Mr Stuart: I am grateful to my hon. Friend for his intervention, but I am not looking for Ministers to limit that disruption; I am looking for them to remove that disruption altogether. However, he is right to mention the date. We are talking about a major manufacturing business. We are talking about businesses with 700 staff involved in tooling up, buying in the resources and planning their production, yet we are facing the introduction of this VAT on 1 October. Let us imagine the impact on the supply chain; imagine the impact on ordering; imagine the eddies of people looking to beat the deadline and at the same time destock to make sure that they do not hold stock on 1 October when whatever product they have will be 20% more expensive and potentially unsaleable.

Miss Anne McIntosh (Thirsk and Malton) (Con): I have been listening very carefully to my hon. Friend. Is he concerned that, as in my constituency, the business plans for this year of businesses that have static caravans and want to increase their numbers will be completely in ruin?

Mr Stuart: My hon. Friend is right. We have heard examples of managing directors of companies being called in by their banks to talk about lending provision because of the threat and uncertainty that this measure brings. It will be extremely disruptive to a fantastic British manufacturing success story. Let me go through the process. The supply chain is in the UK. It is very much concentrated in east Yorkshire but hundreds of people are employed by suppliers elsewhere in Yorkshire and across the country.

Andrew Gwynne: The hon. Gentleman is making an eloquent case regarding the supply chain, which is indeed spread right across the United Kingdom. Let me draw to his attention the correspondence I have had from a company called Phantom Ltd, based in Reddish in my constituency, which supplies security and safety systems to the leisure market, including the caravan market. It says that the VAT increase could be “devastating” for its business and that its

“plans for expansion will be severely curtailed and new employment opportunities will be lost.”

Is that not the reality of these measures for the wider supply chain?

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Mr Stuart: I fear that the hon. Gentleman may be right.

As I was saying, there is the supply chain and manufacturers, all of which are UK-based, then there is the sales channel and the deployment of the end product. Where? That is in rural and often coastal areas and areas with low incomes all over the country. What is the effect? It is to bring people, once they have made the capital investment in a caravan, to visit those areas week in, week out, bringing all sorts of economic benefits to areas that otherwise do not have a lot of industry to fall back on. When one looks at the industry in the round like that, one sees that it is special. Perhaps everybody says that, but we must consider how successful it is and who it serves. I have not even got to the point about who will be affected. We are talking about people who want to make a purchase of a home for about £30,000, not people who can switch easily to making a bricks-and-mortar purchase. When the tax-dodging, socialist, multi-millionaire candidate for the London mayoralty goes off to console himself by buying a cottage, he will not have to pay VAT, but when hard-working, decent people who like to pay their taxes go to get a slice of the decent life and have a stake in the countryside they will find that the caravan they want to buy at £30,000 now costs £36,000.

Mr Alan Reid (Argyll and Bute) (LD): The hon. Gentleman is making his case eloquently. In my area, which is a large, rural, coastal area, there is a large number of caravan sites, which bring a lot of money into the local economy. He is right that this measure will affect large parts of the country. I fully support him in his new clause and I hope that the Government will have second thoughts.

Mr Stuart: I am grateful to my hon. Friend.

Andrew George (St Ives) (LD): I, too, have put my name to the new clause. Is the hon. Gentleman aware of the anomaly in areas such as mine where there is a planning restriction on occupancy where static caravans exist, making them ideal for people who want to use them for holiday homes? Under the measure, static bricks-and-mortar constructions will not be subject to the same level of taxation, so the measure will benefit those who can afford to have a second home and will therefore have an impact on the availability of housing for local people, whereas the presence of static caravans does not impact on the local community in the same way.

Mr Stuart: My hon. Friend is quite right. That is why the hon. Member for Ynys Môn (Albert Owen) has a fair point. Some people will be able to afford permanent housing, thereby further pressurising the housing market in areas where such housing is limited. Static caravan parks have been a perfect arrangement, because they allow both the local community and people from outside to benefit. They have meant that the local worker who is looking for a house—often someone who works at a caravan park—has been better able to find a house.

Chris Bryant: I hope the hon. Gentleman will accept that in some cases people will not be making choices but will have absolutely no choice. In my mother’s case when everything had gone wrong in her life and the only

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money she had was the money she was going to spend on a static home, the difference between £30,000 and £36,000 would have been the difference between homelessness and having a home.

6.45 pm

Mr Stuart: I am grateful to the hon. Gentleman, although properly designated permanent homes will continue to be VAT-free. We are talking about static holiday homes that are not supposed to be a main residence, although there are people in my constituency and elsewhere who are occupying under false pretences, whether misled by the owner of the park, as sometimes happens, or having allowed themselves to be misled.

Nadhim Zahawi: I am listening carefully to my hon. Friend. What would he say to a dealer and park operator in my constituency who said that we cannot defend the anomaly for what is deemed a luxury purchase? They want a bit more time for consultation and forward planning. The idea that a towable caravan is VATable, but a static one is not is indefensible.

Mr Stuart: In truth, if we were starting with a blank sheet the tax system would look nothing like it does today, but we are not starting with a blank sheet. We have an industry with the characteristics I have described, yet at this of all times we are about to introduce VAT. Will it raise £500 million or £1 billion towards the massive deficit left to us by Labour? No. At best, it will raise £45 million a year while damaging the economy in east Yorkshire and in rural areas across the UK. As a practical politician, keen though I am on tax simplification, it is not obvious to me that this particular simplification is justified now. It is not, and the Government should think again.

The Government are consulting; they accept that they do not have all the answers and the proposal is out for consultation. The shadow Chancellor may not take it at face value that the Government are serious and that they are consulting properly, but I do. I have met the Chancellor and he has told me that that is the case, so I call on the Government to listen to the representations from the Chamber today and to those that will come from the industry over coming days and weeks, and to think again. Given the appalling inheritance from the shadow Chancellor, there is no embarrassment in looking hard at every area. There is a good intellectual case for the proposal in theory, but in practice it is a bad idea. It will not bring in enough money. It threatens many jobs and it should be rejected, as I am sure it will be.

Mr Greg Knight (East Yorkshire) (Con): There is a lot to be said on the issue, so does my hon. Friend agree that the Government would be wise to extend the consultation period?